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Paul Ginsburg: If you could take your seats? Im Paul Ginsburg and I
want to welcome you to the conference, "Patient Cost Sharing: Promises
and Pitfalls."

By way of background, there are very important trends going on now in employment-based
health insurance towards greater patient cost sharing. Weve seen substantial
buydowns by introducing more cost sharing into the benefit structure, and people
Ive talked to expect that this trend will only increase.

In addition, just last week in the Medicare legislation, theres a very important
provision on health savings accounts that will likely give strong encouragement
to increasing the use of deductibles in employment-based health insurance as
well as in individual coverage.

Now, this movement towards more patient cost sharing really is a reflection
and a reaction to some major trends concerning managed care. Think of the unpopularity
of restrictions on care by insurers, the emphasis on broad provider choice,
and the accompanying trends, the premium trends, are way in excess of income
trends, so that health insurance is becoming less affordable to many.

Now, there are a number of issues around patient cost sharing. One is whats
the potential for cost control, how much can be achieved through this tool.
Another is how often is it a barrier for people getting the care they need.
And, finally, does it cause a great deal of financial disruption for families?

Now, if cost sharing is to play a large role, it probably needs to be refined;
probably needs to apply more heavily to discretionary care; probably needs to
apply more heavily to less effective providers or to patients that choose less
effective providers; needs to protect low-income people from serious financial
burdens. And these questions are what this conference is about.

This is not about whether cost sharing is a good or bad thing. My perspective
is its happening, whether we like it or not, and this conference is really
what are some of the ideas, what products might be rolled out, the thinking
of leading-edge employers about how to take this cost sharing and make it a
more refined instrument for the control of costs and maybe even the improvements
of quality.

We have a number of terrific speakers here today, and heres how the conference
will go.

First, two researchers from HSC will set the background for the conference.
Joy Grossman will introduce the overall concept and issues in patient cost sharing,
and Sally Trude will present results from an HSC study being released today
on how cost sharing impacts different types of individuals.

Then were going to hear from John Bertko, who is an executive at a large insurer
specializing in fully insured products for small employers. I think Ive got
that right.

John Bertko: Yes.

Paul Ginsburg: Good. And then were going to hear from Arnie Milstein,
who is a consultant to very large employers that tend to be on the leading edge
in their health benefits programs.

Then we will have a break, and then a reactor panel, which will represent four
different perspectives, although the panelists dont have to be locked into
the perspective that--the perspectives of consumers, of employers, of physicians,
and those who are leading the efforts to improve quality of care.

We will have question-and-answer time for the audience, and were going to continue
to use the technique that we adopted from the Alliance for Health Care Reform
of having a mix of oral questions from the microphone and written questions
from the cards that you have in your packet. And well be collecting cards at
two occasions: once during the break and then after each of the reactor people
has made their initial remarks.

I want to thank the Robert Wood Johnson Foundation for their support for this
conference and for all the work of HSC, and also point out that they are webcasting
this conference on their website, www.rwjf.org.

Another announcement is that, as some of you know, HSC is transitioning its
publication dissemination process to an entirely electronic process, and if
you havent already done so, please go to the website and sign up for e-mail
alerts so that you can be alerted when each publication is being released. This
is the last month for mailing of publications.

So let me begin by introducing Joy Grossman, who is a senior health research
at HSC.

Joy Grossman: Thanks, Paul.

I see it as my job to try to help everybody switch gears from thinking about
Medicare legislation to thinking about what Paul noted is, of course, a very
important trend in the employer-sponsored insurance market. And as he said,
faced with rapidly rising health insurance premiums and a continued backlash
against managed care, cost containment efforts have really shifted from focusing
on trying to change provider behavior to looking at changing consumer behavior.

And employers have a number of levers they can use to try to offset at least
some of the premium increases that theyre seeing: first, they can try to increase
the proportion of the premium paid by the employee; they can reduce the services
that are covered under the benefit package and ask the employee essentially
to pay for those services out-of-pocket; or, lastly, they can think about increasing
the patient share of the cost of services through deductibles, coinsurance,
or copays.

And, to date, employers have really focused mostly on this last option, and
its particularly attractive to them because it lowers the total premium, and
that means that both the employers share is lowered but also the employees
share of the premium or contribution to the premium is lowered as well.

This reduction in premiums comes from two sources: one is shifting costs onto
employees that use services, and the second is providing incentives for patients
to use less care.

During our site visits, we really found a lot of diversity among employers in
how they are increasing cost sharing over the past few years. Essentially, theyre
making incremental decisions as they look at their existing package and try
to figure out how to reduce the premium increases theyre facing. And they have
a lot of different options that they can play around with, so to speak, in adjusting
their cost sharing.

First of all, at the most basic level, weve seen increasing copays and deductibles.
For example, the Kaiser Family Foundation Employer Survey showed that there
was about a 60-percent increase in the PPO deductible over the last several
years.

Flat copays are in some cases being replaced with coinsurance, which is a percent
of the bill; so obviously for more expensive services, such as inpatient services,
this will have a larger impact on patients.

All three types of this cost sharing—copays, coinsurance, and deductibles—are
being applied to a broader range of services, for example, inpatient care.

Were seeing a lot of enhancing of the prescription drug tiering, and this is
an example of sort of incremental approaches. Some employers are still moving
to the three-tiered approach; others are adding a fourth tier for lifestyle
drugs, adding coinsurance or deductible or otherwise playing with the levels
of copayments.

A really critical component of cost-sharing design is the annual out-of-pocket
maximum. Typically, theres a cap on what patients are required to pay out-of-pocket
in a given year, and so far the Kaiser Family Foundation Employer Survey hasnt
shown a lot of change in this, but this is an area to watch where employers
have an option of increasing the maximum out-of-pocket that patients are required
to pay or could change whats included in that and start excluding services
from that maximum.

And as everybody is aware, there are a lot of new products being marketed out
there--consumer-directed health plans and tiered networks--that kind of incorporate
more sophisticated cost sharing.

And the bottom line really is that cost sharing is increasing, but its also
becoming much more complex as employers choose from among these different options.

As I said, cost sharing lowers premiums in two ways: by shifting costs onto
those who use care and by creating incentives to reduce use of services. And,
ideally, youd like to reduce the use of inappropriate care, but research has
shown, particularly the Rand Health Insurance Experiment has shown that patients
faced with higher cost sharing typically cut back both on needed care and more
discretionary care. And this suggests that traditional cost-sharing designs
are blunt instruments for trying to target reductions in use. For example, with
drugs copays, it is just as likely to reduce necessary utilization by people
with chronic conditions as it is to address overuse of antibiotics.

And theres a particular concern that low-income people or those who face higher
health care costs because theyre ill will forego needed care because of these
higher costs. And Sally is going to, as Paul said, talk more about the financial
impact of particular subgroups of individuals.

But really what we want to know the bottom line is, whats this impact of foregoing
care on health status? And theres some research from the Rand Health Insurance
Experiment and other studies that has suggested that there isnt much short-term
impact on health status for the average patient; however, we dont really know
much about the long-term effects.

Today were going to be talking about ways to help try to refine cost sharing
that helps steer patients towards more cost-effective options for care while
trying to avoid the financial barriers to needed care. And one way to think
about this is giving patients choice in the type of care that they get that
would require them to pay more for less cost-effective options, and obviously
this is the focus of Johns and Arnies presentations. But just sort of on a
broad brush, as Paul mentioned, you can think about patients, for example, for
particular diagnoses or facing particular treatment options that they be given
incentives to choose the most cost-effective option by facing lower copays for
those. Patients with certain types of chronic conditions might face lower cost
sharing if theyre willing to participate in a disease management program. If
you try to steer patients toward more efficient providers, for example, were
already seeing plans that have lower copays if patients are willing to go to
centers of excellence for particular major procedures.

And, ideally, in these designs you want to limit cost-sharing cases where care
is necessary and theres not a lot of discretion in treatment options and where
you want to make sure that the patients do get the care. And as an example,
if youre somebody who has diabetes, you want to reduce cost sharing for preventive
services so that they have an incentive to get that care.

And in the case where theres discretionary choices to be made, you want to
minimize cost sharing for the patients who choose the most cost-effective option.

Obviously, there are a lot of issues to explore, which well be doing today,
related to designing and implementing these types of cost-sharing arrangements
and what the bottom-line impact is of them. And Im just going to kind of walk
through a few of these, and hopefully well have more discussion about some
of them today.

First of all, do we have adequate information about cost-effectiveness and the
like in the clinical literature? Do we know what patients responses will be
to different kinds of cost-sharing mechanisms? And assuming we can design these
kinds of cost-sharing arrangements, will employers be interested in pursuing
them? And large employers may be interested, but what about small employers
having these options?

In terms of implementing them, we already know that patients dont know a lot
about their health plans. Can we give them the right tools and information to
both assess their cost-sharing options and treatment options that they might
face? And we know that physicians are still the ones who ultimately make the
clinical decisions. Recent research has showed that physicians really dont
know much about cost sharing and that they dont talk to their patients about
it. So would they know about it? Would their treatment preferences align with
the incentives that the patient faces? And, more broadly, will the quality improvement
efforts, for example, pay for performance, would those incentives align with
the incentives the patient faces? And, ultimately, are these things too complicated
to administer? You know, if you have to update--if medical effectiveness changes
over time, do you have to update these cost-sharing arrangements? We already
know providers are having trouble collecting copays and the like from patients
now. What would happen as these things increase over time and are more complicated?

And as Paul said, the bottom line is how much money can we actually save from
these types of options. We know that the bulk of expenditures comes from a very
small proportion of the population. It raises a lot of issues that we have faced
with the managed care backlash, issues about accountability for determining
medical effectiveness and steering people toward certain types of care. And,
lastly, theres a potential issue for risk selection. If employers offer employees
different plans with different types of cost sharing, might you see the riskful
separating between the healthier and sicker employees?

So, with that, Im looking forward to our discussion about these issues, and
Ill turn it over to Sally.

Paul Ginsburg: Thank you very much, Joy.

Next, Sally Trude, whos also a senior health researcher at HSC.

Sally Trude: As Joy mentioned, theres been a universal trend of employers
towards increasing cost sharing, and this raises the question of how far can
this trend go and what will be the ultimate effect on the out-of-pocket costs
that patients pay.

We have new research that translates the employer benefit designs into what
the expected out-of-pocket costs are likely to be under the various benefit
designs. We also examine the effect by health status and income. And I should
also mention that you have an issue brief in your packet which describes this
study in more detail if you want to get into some more of the actuarial points
behind it.

And while theres been a universal trend towards increasing patient cost sharing,
the employers are at different levels of cost sharing. So you have some employers
who are still sort of at the low copays and are just now increasing the copays
or introducing new ones, like an inpatient hospital per diem and/or an emergency
stay. Others have sort of maxed out what they can do with copays and are now
introducing coinsurance. And then theres sort of the buzz out there about all
of the high-deductible product offerings.

The work that Im going to be presenting today is based on some actuarial models
developed by Jim Mays and Monica Brenner at the Actuarial Research Corporation,
and they used a 1997 Medical Expenditure Panel Survey to estimate 2003 average
out-of-pocket costs.

And following along that scenario or the continuum, if you think of it as a
continuum of employers incrementally increasing the cost sharing, our scenarios
follow that continuum. So what we call the baseline option is the low copayments
of that $10 per physician visit, and then the next level of copays doubles the
copay for physician visits and introduces the per diem hospital stay and has
about a $150 emergency room copay.

Then the next four scenarios are raising coinsurance rates and the deductible
from a $100 deductible on up to a $2,500 deductible. And I should also mention
in this that the models assume as part of it that, as the costs increase for
people, theyll reduce the amount of care they seek or that they get.

We also assume in this that if an employer is going to go for a high-deductible
option—which hasnt really happened yet, but if they do, we expect that they
will also increase the out-of-pocket maximum cap. And so in all of these models
we assume that that cap is $1,500 over the deductible.

So, not surprisingly, we see that the average annual out-of-pocket costs increase
under this continuum of higher cost sharing, so you have about $50 under the
lowest, up to about $600 average out-of-pocket costs under a $500 deductible
scenario, and it goes all the way up to just over $1,000 per year on average
with the $2,500 deductible option. But this, of course, includes people who
arent seeking care, and what we also see is that the risk of facing large out-of-pocket
costs also increases along this continuum of increased cost sharing.

So in the lower ends, at the baseline and higher copay, no one is paying over
$1,500 because of their out-of-pocket maximum limit.

Then we find that although the average out-of-pocket costs increase for the
chronically ill, its very striking for those who report themselves in poor
health or who have been hospitalized during the year.

In fact, we find that for those that are hospitalized, over 90 percent of those
hospitalized will exceed $1,500 in out-of-pocket costs under the highest-deductible
and coinsurance options that we modeled.

But this also depends on how much income a person has, and so we find that for
those in poor health or who are hospitalized, one in four will end up spending
more than 10 percent of their income in out-of-pocket costs under the higher
cost-sharing options.

And the financial burden also increases for low-income workers. For those between
125 percent and 200 percent of the federal poverty level—thats between $11,000
and $18,000 per year for a single person—16 percent would spend more than 10
percent of their income on out-of-pocket costs for the $1,000 deductible option,
and that would go up to 23 percent under the highest option, which is the $2,500
deductible.

So we see from all of this that the financial burden increases the most for
the seriously ill and for low-income workers. And while increased cost sharing
reduces discretionary care, it also reduces needed care. Employers are, therefore,
probably not going to be going into the far extremes because theyre going to
want to target the discretionary care and not necessarily set up a financial
hardship, financial and medical hardship for their workers. But increased cost
sharing from the lowest levels to more moderate levels is going to raise patients
awareness about the costs of care. But the part of it that will be most interesting
is what part will the physicians play in this debate because up to now costs
have not been part of the patient-physician relationship, and so that will be
the dynamic that well have to see change, because although consumers will become
more aware of the costs of care, we need to figure out how that will translate
into a dialogue about cost-effectiveness within the doctors office.

Paul Ginsburg: Thank you very much, Sally.

Id like to introduce our next speaker, whos John Bertko, who is vice president
and chief actuary at Humana, Incorporated, whos going to talk about the innovations
in cost sharing that companies like Humana are envisioning to roll out to their
clients.

John Bertko: Thanks, Paul, and good morning. Id like to just describe
a little bit of the perspective Im bringing today.

First off, like Paul and maybe Arnie, weve been around for a while. I started
my actuarial career in the mid-1970s, and some of this I think is the pendulum
swinging back and forth on cost sharing. Growing up, I was covered by a steelworkers
plan. That was a base plus major medical, if anybody else here remembers that,
and things changed to PPOs with deductibles in the 1980s, the deductible in
front of everything. And then as HMOs became popular in the 1990s, PPOs tried
to look like HMOs and went to low copays. And here we are now saying, Hmm, maybe
we need to swing back the other way.

Secondly, just compared to the researchers here, I have to operate in the real
world, and so--

[Laughter.]

Thats my usual jab at everybody here with a Ph.D. But the second part of that
is, as the chief actuary, I dont do much real work anymore, but I do work closely
with our product development folks and monitor my teams of pricing actuaries
who actually put numbers from our experience on those. We also have a competitive
intelligence unit which monitors everything kind of across the spectrum of major
players, like Humana, like the Blues, United, Aetna, Anthem, and all the folks
like that.

So today Im going to speak from an industry perspective in terms of what I
see going on basically today on the leading edge and with a little bit of speculation
on where stuff might go off into the future.

Heres what companies like ours, I think, see as the goals of these increases
in cost sharing, and most importantly is to make costs and choices of treatments
more visible to consumers. With low copays, weve done enough consumer research
to know that most people think an office visit costs $10. It costs either $50
or $75 or more, depending on what kind of specialist you go to. Arnie is going
to talk more about this, but its very important that we channel individuals
seeking care to the most efficient providers and the most appropriate site of
care for these.

That follows to number 3 here. We need to reduce the inappropriate use of new
technology. New technology is great. A relatively recent study for the Blue
Cross/Blue Shield Association said that perhaps as much as 60 percent of health
care trend in a high-trend environment may be attributable to the introduction
of new technology, and thats not only the direct stuff but its use of new
services, new devices, imaging in particular, which well talk about, and a
whole variety of things.

And then, lastly, to get to a point where we introduce positive incentives,
and in particular for disease management and prescription drug compliance, weve
found in some of our studies that, for example, lack of compliance on drug therapy
is actually an early indicator of a future catastrophe. And the simplest one,
if you stop taking diabetes drugs, insulin, et cetera, you might be on the road
to other fairly dramatic body system failure.

Okay. So back to the 1990s versus 2003, weve moved from what Ive described
as old cost sharing--that is, we went to low copays from deductibles and coinsurance,
which were very, very prevalent. I have lived in California for 30 years and
remember the days when being a Kaiser member was thought of as being in a cult.

[Laughter.]

You know, there were those that were in Kaiser, and there was the rest of the
world. That changed dramatically.

Many covered services went from having a deductible in front of them, in particularly
hospitals and prescription drugs. In the mid-1980s, there was almost no prescription
drug plan that had copays. You had a $100 deductible, nominal dollars at that
time which would be worth much more these days. And they became exempt from
deductibles.

Mental health services used to have those kinds of things, plus all kinds of
inside limits. Those now have moved to a completely different kind of management
with the managed behavioral companies.

What kind of new cost sharing are we looking to? In particular, one of the big
trends is tiers to aid channeling to these efficient providers; secondly, site-
and service-specific deductibles and copays. I think one of the things that
Joy mentioned here is that this is going to become more complex. Absolutely
true. Its going to be more difficult for consumers. Its going to be somewhat
more difficult for providers, although one of our competitors has introduced
swipe-card technology where you go into a doctors office, he takes his Visa
machine, swipes the card through it, and up pops up, you know, what the deductible,
copay, or thing is like that. Were experimenting with that as well.

Those technologies are not all here yet, but they offer the promise of instant
access to some of us.

There are fewer requirements for approvals. Paul cited this in his introductory
comments. There were lots of barriers, checks and balances to getting care of
various kinds during the 1990s, and a lot of that has gone away. Companies like
ours and most others in the industry have responded to that by reducing the
barriers in that form.

What are some of these current trends? Okay. More layers of deductibles and
copays. We are no longer going to have--go back to the days of a single large
deductible. Sallys comment here about not many employers having big deductibles
is true. Paul cited the new legislation which now allows for offering health
savings accounts for high-deductible plans, and as I recall, thats with $1,000
or more. In our larger group segment, which are those that are above the 50
level for small group rules--I just did a check the other day--we have about
2 percent of our members covered by $1,000 or more deductible plans. So theyre
not very common yet. They may become more common, but those kinds of high deductibles
are relatively rare in that segment. I dont have the numbers for our small
group segment. I know its more. But it still is not very common.

Well have both tiered hospital benefits that may have copays and coinsurance.
We are already offering tiered physician networks, and we offer two kinds and
many companies do: primary care versus specialist, or within the different tiers,
youd have perhaps—I think, Arnie, this is your favorite phrase—high-performance
networks versus regular networks very out-of-networks.

Consumers are going to have to do more work to find out where the best site
for them is and where the most affordable care is.

Prescription drugs are returning to coinsurance. I think Joy cited this one,
that fourth tiers are added. In some cases they are for the most expensive high-tech
drugs. Probably the worst abuse that I read in the newspapers is human growth
hormone for people wanting to take it to become better athletes, or if theyre
aging athletes like me, maybe I should take that to help me jump better when
I play basketball. And then some products now being offered with drug copays
that are only having coinsurance tiers and no longer copays.

A few other comments here. Use of cost sharing to change site of care. I think
one of the centers recent papers talked about the increasing use by insured
patients of emergency rooms, and that is probably coming from a variety of reasons,
one of which being the prudent lay person rule, and the second, I think, Paul,
you guys cited as the lack of availability of office visits on an easily-scheduled
basis. Well, an emergency room basically costs an employer, a health plan or
an individual 500 to $700 the moment that you walk in the door.

And if you can exchange that or lead to an exchange of that for a $50 office
visit, its a great trade. You probably have better care, and because its more
coordinated, the doctor knows your history and your prior lab results and of
course, obviously, much cheaper. An in-between level of care, and again the
copays are frequently set up this way, $150 for an ER visit, $75 for an ambulatory
surgery center, and of course, between a 10 and $20 copay if youre just going
to visit a physician.

Much higher cost sharing for certain imaging services. We have found this in
that whole spectrum of outpatient treatments, imaging being one of the ones
that is running up the fastest. So the inappropriate use of MRIs and CAT scans
with higher deductibles, versus, say, those for regular x-rays and other simpler
forms of radiology.

Health reimbursement accounts to modify medical consumption, and here Im talking
about the part that is within what is sometimes referred to as consumer-directed
health plans. They start with an account or an allowance of 500 to $1,000, and
then after that is exhausted there is a large deductible usually, frequently
1,500 to $2,500. There are other conferences talking about that. It is certainly
one of the parts of the health insurance spectrum that is most discussed today.
Again, enrollment in those is still relatively limited. I think estimates for
this year are running to between a million and 2 million people out of 160 million
or so insured this way, as being in those consumer-directed health plans.

When doing this, other tools come into play, cost calculators, various decision
support types of tools. In some cases, trying to indicate the cost levels, many
of the companies like ours cant just say Hospital X costs $1,700 a day, and
Hospital Y costs $3,800 a day. Because the moment we would announce that, our
contract are invalid, and our competitive position goes away.

I would say that based on our relatively limited experience on about now 25,000
people, it shows evidence of cost savings, not so much in terms of increased
cost, but reducing the actual use of services and in particular inappropriate
services like the emergency room and imaging.

How about incentives for better behavior? And some of these have been reported
in the newspapers about giving—and Ill call them "frequent flyer points"—frequent
user points, or good user points. Some could be applied for getting, you know,
refrigerators and TVs, others for being applied to perhaps reduced cost sharing.
Disease management here is probably one of the key ones. We can identify that
spectrum of people who are good candidates for disease management. However,
when we go out and carefully ask them whether theyd be interested in joining,
only about 20 percent of them respond positively. The other 80 percent are a
challenge to outreach by us, so can enrollment and then compliance with disease
management programs be helped through these?

I think were going to see those experiments. In particular, rewards for prescription
drug better compliance might be there. We know how to track these. We can see
where people have gaps in coverage. Somebody takes their drugs for 2 months
and then stops ordering drugs. I mean we cant follow them day by day, but we
follow the pattern of whether theyre having their prescriptions refilled.

So, Paul asked me to speculate a little bit about what comes next. Many of us
are using episodes of care to evaluate how efficient or affordable providers
are. There is one company out there that is actually offering insurance based
on purchase of episodes of care. This has a couple of problems with it. Its
very easy for a few episodes, like normal delivery, to say what thats worth.
Its very difficult for others. There are 15,000 CPT-4s, and when you combine
those with treatment options you could have literally millions of different
ways of episodes here.

The other thing about episodes, at least the way that we do it, you have to
have sometimes a retrospective look at that. You have a couple of small office
visits. You have some drugs prescribed. And then you have a major event. Well,
the way we look at it is we take a backwards look to create the episode, and
thats probably impractical from a cost-sharing perspective. Theres going to
be much greater specificity for copays, on imaging here, for example. Not only
would you have low copays for x-rays, but you might have medium copays for MRIs
and high cost things for medically indicated things. I mean if I fall off my
bicycle and hit my head and go there, I would hope that theyll do an MRI on
me. Now, more likely, I will have jammed or dislocated my little finger, like
I did about 3 months ago. Dont need even an x-ray for that. They know whats
wrong with it. They dont need an MRI. So higher copays might be indicated for
things that are more discretionary.

And then the last thing here in my list of very much future is right now most
companies like ours have contracts for hospital systems for all care. Ill let
Arnie address that, but I would speculate that from our research, that many
hospital systems are good at one, two or three things. Hospital System B is
good at four, five and six, and in the perfect world we would buy from those
hospital systems that deliver the best services both in quality and efficiency
and not just slug it out with everything from a certain hospital system.

Again, what comes next? Heres one that I think is problematic. Again, back
to my comment about being insured in the 60s and 70s here. We had plans which
basically said you can have $1,000 worth of hospital care at the time; you can
have surgical and professional care covered up to a certain amount. Those are
being offered again by what I would call boutique health insurers, and theyre
very low premium, and some people might suggest that theyre relatively low
value, and the question is whether its better than none.

So I guess Ill sum up mine by saying that more cost sharing is likely in the
future and its likely, at least from an employer and I think an insurer perspective,
for getting better value from purchasing. The world, our consumers out there
have told us they dont want managed care to tell them whats good value. Instead
we seem to be heading down the path of having to have consumers decide whats
better value. So this high continuing trend being partly at least as a result
of lots of new technology.

David Wenberg [ph] presented a couple of months ago some information about the
very, very high variability of supply-sensitive services. I would suggest you
look at some of that research, and that using better and appropriate sites of
care is important. So better cost sharing might promote centers of excellence,
give better quality and at least for actuaries, you might be able to reduce
trend.

Paul Ginsburg: Thank you, John. Could you just stay for a second? I
have a question for you. I was wondering if you could comment on when these
ideas are presented to the small employer, the person or the small employer
that buy health insurance, or the brokers that interact with them, whats their
reaction to that? How receptive are they?

John Bertko: Well, I will be overly-candid and cynical. The three most
important things to those small employers and the right broker is price, price,
price. If price comes down and its not overly complex, theyll buy it. If price
does not come down and youre just trying to sell it on better quality of care,
you might as well give up.

Paul Ginsburg: Thanks. Thank you, John.

Id like to introduce our next speaker whos Arnie Milstein, and I like his
title so it want to say it to you. Hes Medical Director of the Pacific Business
Group on Health, and the National Health Care Thought Leader of Mercer Human
Resource Consulting.

Great to have you here, Arnie.

Arnold Milstein: Thanks, Paul.

Im going to switch the frame in two ways. Im going to talk about the thinking
of large employers with respect to cost sharing and also try to move the frame
for describing whats happening out a few years. A lot of my work involves benefits,
strategy, planning exercises with large employers, so Im going to talk about
what I see crystallizing on a 3- to 5-year basis, understanding that forecasts
are dangerous.

Why are large employers reexamining cost sharing? Well, the reasons are self
evidence. Every year the Business Roundtable, Americas Club of Fortune 500
CEOs polls its members on what is the number one cost problem in the entire
corporation? And this part year it wasnt government regulation, it wasnt unions.
It wasnt trial attorneys. It was health benefits cost, and nothing was within
20 percentage points of the rating that they assigned to health benefits cost.

Simply getting rid of it is obviously impossible because if you also--MetLife,
for example, periodically surveys Americans about whats their number one financial
security concern? And this year, again, its been going on for several years
now, the number one rated item was continuity of health insurance, and that
was rated above continuity of job and having enough money to make ends meet.
So as hot as the potato is, its hard to let go.

Do the employers want to be in the business of kind of economic engineering
and trying to figure out how you come up with consumer incentives to improve
the value of health benefits? They dont want to do that at all, and if they
thought that they could rely on professionalism or tighter managed care or government
regulation to make this happen, they would happily do so, but theyre not optimistic
about being able to rely on these alternative solutions.

Let me say that what Im about to talk about is in no way attributable only
to large Fortune 500 companies. I do plenty of work with large state employee
benefit plans and their boards, and with large Taft-Hartley operated by unions,
and this perspective is widely shared.

With due apologies to Carl Jung, Ive tried to abstract my planning work with
large employers into three kind of dominant—Ive called them archetypes. Lets
just call them, you know, Three Face of Cost Sharing. And these are very rarely
visible in pure form.

But the first archetype are the restorers that seek to restore what historically
30, 40 years ago was a much higher percentage share of beneficiary health benefits
cost sharing. And they define the problem as an unintended or imprudent purchaser
of cost share creep over the prior 30 years. In other words, that theres been
a major shift in the percentage of the bill paid. And their preferred solution
is to hollow out benefit coverage within all health plan options, and John has
described that phenomenon.

Another common archetype is what I call the skin grafters, and here the notion
isnt necessarily to transfer more cost, but even holding the plan, the value
of the plan actuarially constant to so-called get more beneficiary skin in the
game, their definition of the problem is the moral hazard of insurance, that
if youre spending other peoples money, youre spending more of it than you
would be spending if you were spending your own money. And a common solution
to this is to offset a higher deductible with a portable spending account of
equal or almost equal actuarial value so that you feel you own the dollars.

A third archetype is what I call the calibrators. They seek to calibrate the
beneficiary cost share to traces by beneficiaries that involve discretionary
inefficiency. In other words, for example, picking a treatment option that may
have an equal expected outcome, but its much less cost effective. And the classic
example of this, insistence on a brand drug when a generic drug is available,
is a very clear-cut example of this.

They define the problem as that beneficiaries are day to day in choosing doctors
and treatment options and hospitals, selecting inefficient options, and theyre
preferred tool is to incentivize the selection of efficient—and well talk
about this in a few minutes—and perhaps higher-quality options both before
and then after on a continuous basis plan enrollment.

If I had to sort of forecast how this might crystallize over a 5-year time frame,
I would say in the near term, as John has described, the restorers are predominating,
the notion of simply lets so called buy down benefits, lets pay a smaller
percentage, and thats obviously the simplest tool and thats predominating
in the near term.

I think intermediate term, particularly with this new Medicare feature, new
Medicare legislation, there probably might be a little bit more activity amongst
skin grafters, but I think longer term, this more refined approach to cost sharing
in which beneficiaries are being incentivized to select more cost effective,
and I hope, higher-quality options is likely to predominate, because it prevents
a lot of the--Ill call it the unintended negative consequences of higher cost
sharing.

What Im about to comment on obviously doesnt apply to all large employers
or to all employers. I dont have a good knowledge of the small employer market,
and I really defer to John on that. It may apply less to large employers who
view their labor forces as commodities rather than tight markets in which they
have to compete, and obviously doesnt apply to desperate employers whose businesses
are on the rocks, who are not constrained by labor agreements.

So what Ive done is, Ive tried to sort of bring you into my world and tell
you that when you do benefits planning work on a 2- to 5-year horizon, and you
being to focus on cost sharing, the questions you end up answering fall into
six primary buckets, and Im just going to walk you through each of those six
primary questions and show you where I think the large employers are beginning
to land, not tomorrow, but on a 2- to 5-year going forward basis.

The first question is just the question of what fraction of average per-beneficiary-health
care spending will employers pay? And I think the predominant answer that I
sense crystallizing in the planning exercise I participate in, is enough cost
shared to attract and retain the labor force they need, and clearly, as John
and Paul and as Sally and Joy described, this fraction is decreasing in todays
weaker labor market and economy.

You know, one question here is: well, in factoring in, in running this calculation,
will employers--how much weight will employers attach to the so-called indirect
cost savings? You know, in other words, reduced absenteeism and productivity
losses due to health problems, how much will that be taken into account? It
does get taken into account by the smarter, I think, larger employers, but it
tends to be significantly discounted because it is not very visible in employers
financial accounting systems.

Question two: how will a beneficiarys amount and percentage cost share be linked
to individual beneficiary distinctions? This is obviously a very pivotal question.
And I think the center or the answer that Im seeing beginning to crystallize
now is that more will be paid by service users, by those with dependents—this
has obviously been true for a while—by the more affluent—and Ill talk about
that in a minute—and those beneficiaries making certain types of selections
which increase spending for the insurance pool, and Im going to focus on that
in a minute.

So lets take that last question and sort of say, exactly which beneficiary
selections do I think will end up carrying a higher cost-sharing burden? And
I think the answer is really split into—Ill call it pre-2004 and post-2004.
Pre-2004, I think that the beneficiary selections that will carry a higher cost-sharing
burden will be focused on bundled annual selections by beneficiaries. This will,
for example, more cost sharing will go to beneficiaries who select a richer
plan of benefits. A so-called less efficient health plan, "less efficient"
being defined when you take a health care and its premium and you divide it
by enrollees predicted cost, and you get kind of an efficiency rating. Those
people selecting plans that score unfavorably on that health plan efficiency
calc will end up paying more.

And there are some employers—I think this will increase—that are also beginning
to charge more to employees that dont complete an annual health risk appraisal
because of the utility of health risk appraisals in beginning to help people
longitudinally manage their risk. This is a rare item. This is not a frequent
item, but I sense its increasing. A good example of this is, for example, Caterpillar.
Caterpillar, you pay substantially more out of pocket if you do not fill out
a health risk appraisal.

Post-2004 I think the answer will begin to change a little bit. I think youll
see more cost sharing going to beneficiaries first who do not participate in
personalized programs to reduce the risk of illness and/or cost in the future,
for example, declining to participate in a disease management program, not participating
in a shared decision support program with respect to major therapeutic alternatives,
et cetera. As John mentioned, I think youll start to see, again, on a continuous
basis after enrollment, greater cost sharing if beneficiaries select a less
longitudinally efficient—Ill talk about that in a minute—provider or a less
longitudinally efficient or cost-effective treatment option.

There were a few concepts there that I mentioned. Let me talk about those briefly,
a little side diversion. If you sort of say, well, how did you come up with
variable cost sharing depending on choice of provider, choice of participation
or non-participation in longitudinal health management program, or more or less
cost-effective options? It really derives from current beliefs and near-term
experience as to where the biggest opportunities for harvesting efficiency without
jeopardizing quality lie. And this is an analysis of percentage point savings
opportunities that was pulled together and peer-reviewed by a group of national
health economists that I coordinated about a year and a half ago, trying to
answer this question. And as you can see, the three items on my prior list dovetail
pretty well with national economists estimates of where the primary opportunities
for efficiency harvest lie. It is in the beneficiaries selecting more efficient
providers to participate in longitudinal health management programs and to select
more cost-effective treatment options.

Second point is that up until now is weve thought about linking our beneficiaries
with more affordable doctors and hospitals. Historically the focus on defining
affordable has been on unit prices, you know, what fee schedule are you willing
to cooperate with, whats the average per diem being charged by a hospital?
I think the large employers are beginning to wake up and realize thats a ridiculous
metric. That is a crazy basis for deciding how to direct employees to certain
doctors and hospitals. Theyre beginning to realize that its longitudinal efficiency
over the course of an episode or a years worth of chronic illness that is the
relevant metric for cost effective they need to be focused on.

I wont go into this Power Point because its pretty self evident, but youre
going to start to see a shift as to which providers are defined as the desirable
providers, whether its for purposes of network inclusion or steering through
cost sharing within a current network that you offer.

In the time permitted I dont have—I love this slide, but I kept pushing a
lot of carriers who I work with. I say, would you please—would one of you that
has a lot of claims density in a given geography, please show me for doctors
or small medical practices within your geography how these practices distribute
with respect to current, first-generation very crude measures of longitudinal
efficiency, typically using something like ETGs to a case mix adjust populations
and quality of care, again, using very crude, first-generation methods of quantifying
rate of compliance with evidence-based medicine.

This is a first return. I think Regence Blue Shield for producing this. The
quality index is on the vertical axis. The longitudinal efficient index is the
horizontal axis. As you can see—and this is I think probably not surprising
to health services researchers—that we are today in a world in which there
really is such a thing as a higher-quality, higher-efficiency provider. Thats
what you see in the upper right-hand tier here. And researchers like David Eddy
[ph] have said if you were to take treatment options and put them on the same
grid, you would also see significant differences. And David has recently published
some great research showing that different treatment strategies for managing
diabetes land in very different places on this longitudinal efficiency quality
quadrant.

Question four: How much of the estimated incremental cost burden from suboptimal
selection decisions will be paid by the beneficiary making the decision? Sorry
for that question, but it does turn out to be one thats relatively important.
And theres to what degree do you want to fully transfer the cost, the incremental
cost of inefficient selection decisions onto beneficiaries?

And I think the answer is increasingly going to be close to all of it, but I
put here "subject to income tier limits based on the 20/20 ogre test."
The 20/20 ogre test is the test, if you get a situation where a beneficiary
cannot afford care due to your benefits design, and is interviewed, and you
are interviewed on 20/20 as a result of that care--

[Laughter.]

--do you come across as a complete ogre to your coworkers? And this is the
heart of the calibrator archetype, and I think the good news is as employers
begging to think about differential cost sharing, I think at least the larger,
more thoughtful employers are realizing that they have to begin to think about
income tiering the maximum out-of-pocket limits.

And Ill give credit to illustrative company. Rockwell Automation, as they begin
to move towards more cost sharing, has now begun to, for the first time, income
tier their maximum out-of-pocket limits, which I think is a good idea. I think
it will spare them failure of the ogre test.

Question five: Will employers transfer to beneficiaries the estimated incremental
cost of selecting inefficient options in a bundled fashion via annual or maybe
even multi-annual selection of plans, or using Vivius [ph] as the example, sub-plans,
where Vivius is a health insurance solution in which you pick on an annual basis
not just your plan and your plan design, but also which combination of providers
you wish to use, and that then determines your premium. Or will it occur primarily
in an unbundled fashion over the course of the insurance year via continuous
beneficiary selections, you know, Doctor A versus Doctor B, Hospital A versus
Hospital B, Treatment Option A versus Treatment Option B, after plan enrollment.

And I think the answer is both. You know, the first obviously is what Alain
Enthoven had in mind in his vision for managed competition. But I think that
the unbundled there are sort of so-called point-of-care opportunities to select
more efficient options will receive more emphasis because first of all theyve
been previously under used with the exception of three-tiered pharmaceutical,
and secondly, I think psychologically they appeal because they are more trialable
by beneficiaries. It isnt like an all or none decision. To pick a big network,
pick a narrow network, you can have a full network during the course of the
whole year and how much you pay in coinsurance will vary depending on which
network tier you select from.

And I think this purchaser emphasis on unbundled cost sharing is reflected in
early purchaser choices of so-called consumer-directed health plans. The research
that were doing suggests that most purchasers are opting either for HRA type
plans or tiered plans, both of which emphasize variable cost sharing at the
point of care rather than a variable insurance premium based on decisions you
make once a year.

Last question: Will higher quality be subsidized by employers? And I think I
would have put this question up here even if I had not known Mark was going
to be on the panel, but I knew he would be joining me, so I wanted to address
it, and obviously I think it would be fair game to say, Arnie, we know employers
cards are on the table, we know that very few of them, for example, have sufficiently
valued a very important source of quality improvement like NCQA accreditation.
But that said, I think post-IOM report, a large employer constituency has become
more quality sensitive, and so youll see the answer is something different,
then it wont make any difference.

I think that it will be subsidized employers, but I think it will only occur
probably up to the inflection point where higher quality unavoidably incurs
higher longitudinal costs after, obviously, netting out indirect illness cost
savings. I think once we get beyond the inflection point, that is where higher
quality must cost more, I think at that point, though employers will make the
higher quality opportunities transparent to beneficiaries, I think fewer and
fewer employers will be interested in attaching any weight to quality. But fortunately,
were a long way from getting across the quality chasm, and there are a lot
of excellent near-term opportunities to both improve quality and longitudinal
efficiency.

An example of this would be hospitalists, you know, where current research suggests
that an innovation in care that improves both quality and longitudinal efficiency,
at least over the course of hospitalization and a post-admission/readmission
risk period.

This quality efficiency inflection point, this is a pure speculation on my part,
but I think if you sort of think about what are the opportunities for near-term
harvesting efficiencies by better engineered health care, I think that as Elliot
Fishers research and annals has pointed out, there are some near-term opportunities
for improving the amount of health benefit from spending by more physicians
adopting more conservative utilization practices characteristic of geographies
like Portland and Minneapolis.

In the intermediate term, as the Quality Chasm Report points out, theres a
lot of additional opportunities to reduce cost and improve quality through waste
reduction or what Ive called improved production efficiency, and the folks
who write and talk about this are folks like Brent James and Don Berwick. We
will get to a certain point--Ive said 2018; I dont know whether it will be
sooner—actually, I hope its sooner—where we have sort of taken, weve harvested
all opportunities to both improve quality and efficiency, and we will get to
situations where the only choice if you want higher quality will be more cost,
even over the intermediate term. At that point I think, as I mentioned, I think
employers will be hesitant about subsidizing quality.

And just to give you a sense of where employers are coming out on this, a number
of carriers have gone forward with these tiered-network products and have been
faced with the challenge of well, how much do we weight available quality ratings
versus longitudinal efficiency ratings? And those that have actually specifically
thought it through have obviously talked to their employer clients, so thats
how we have some evidence of employer values here, and the early versions of
this have weighted quality ratings about 25 percent and longitudinal efficiency
ratings of about 75 percent. So thats an early return of at least what some
of the carriers that have pushed forward, how they rate the employers relative
rating of quality and efficiency.

In terms of obviously going forward and trying to engineer, its obvious that
cost sharing is not the optimal tool for pushing American health care across
the quality chasm, and fortunately were not going to be relying on it alone.
There will be regulatory reform. Professionalism I think is on the rise, in
terms of professional responsibility for improving performance, and so cost
sharing will not be the only leg on which improved health gain per insurance
dollars spent will rest.

But if were going to move forward and make cost sharing work better, its obvious
that certain knowledge vacuums will need filling, and if we want cost sharing
to optimize American social welfare, number one, we need more health economists
to research especially so-called consumer price elasticities beyond demand.
We have good information on how, at least respectable information, on price
elasticity of actual demand for care, but we have, just to give you a sense
of it, we have zero published research that Ive been able to find in consultation
with national economists on price elasticity of patient switching behaviors,
particularly the willingness of a chronically ill patient to switch doctors
or hospitals based on X percentage of price variation in their out-of-pocket.
We dont know anything about that, and yet here we are on the brink of trying
to implement refined approaches.

Were going to need a lot of help from health psychologists so we can begin
to understand nonrational decisionmaking as consumers, facing anxiety-provoking
decisions, very complicated information sets, attempt to optimize their spending.

Were going to need some health ethicists to help us fine-tune the ogre test.
Its funny. Health ethicists have I think done a little bit more in thinking
through how do American values align with current notions of what the insurance
pool owes its sicker members. Health ethicists have written a little bit less
on what sicker members owe others in their insurance pool, in terms of American
social values. Its something I think needs more thought.

And then last, but not least, we will need health care operations engineers,
people who can help us speed our way across the so-called quality chasm and
perhaps extend that inflection point so that we can,in the near term, harvest
more and more opportunities than we know about today to both improve efficiency
and quality.

Why dont I stop there.

Paul Ginsburg: Thanks, Arnie. Could you stay there for a second. Ive
got a question for you, but first an observation when I was listening to you
talk about what the calibrators are doing and also some of the things that John
Bertko was mentioning.

What you see is some of the ideas thats emerged in the better thinkers about
managed care, which in a sense was focusing people on the more effective, higher
value care, where the managed care notion was block them from doing the things
they shouldnt do. Now, in a sense, the same thinking is being infused here,
but always through incentives and always letting the patients choose, hopefully
with the support of a physician.

The question I have, not related to that, is you mentioned going back to your
first question about what really motivates employers as to what they have to
do to retain and recruit the people they need, to what extent do you notice
the degree to which, as the economy goes through the business cycle, that interest
in ideas like this waxes and wanes?

Arnold Milstein: I think its very definitely business cycle related.
I think when times are good and theres extra money, the last thing that most
employers want to do is risk employee or labor relations. I think its only
during hard times--

Paul Ginsburg: So I guess the question is, you know, given this recent
spate of encouraging news about the economy, are some of these approaches in
real jeopardy if the economy does well?

Arnold Milstein: I think so. Its obvious that there are two factors.
One is the state of the economy and another is state of health insurance trend,
and as that, you know, depending on--its the gap between those two things that
will influence the speed and motivation of employers to take the kind of employee
relations risk associated with experimentation and cost sharing.

Paul Ginsburg: Thank you.

Well, this is a great start to the meeting. We are going to have a break of
15 minutes. So please be back in your seats at 10:30, and well go to the Reactor
Panel.

Also, if you have some questions that came into your mind during this first
session, please write them on the cards and give them to some of the HSC staff.

[Recess from 10:15 a.m. to 10:31 a.m.]

Paul Ginsburg: Its time to get started. As I mentioned before, we have
four reactors, and while each was asked to present their particular perspective,
theyre obviously not limited and can say anything in reaction to what theyve
heard before on their topic, and Id like to begin this segment of the session
with a reaction from Karen Davis, who is the president of the Commonwealth Funds.

Karen Davis: Good morning. Its a great pleasure to be here with you.

I was asked to comment from a consumers perspective, but that we could try
other perspectives. So I thought I would start with my economists hat on.

Most economists believe in the backward shifting to employees of the costs of
health benefits. So if theres anyone in the room who is a true believer, they
really probably should leave.

[Laughter.]

Because this discussion doesnt really make much sense, if you believe in backward
shifting. Because if costs are really borne by employers, then employees shouldnt
really care about the total costs, and they should really act as the employees
agent in purchasing the kind of coverage that employees want.

The way an economist would think about this, suppose a firm has 3-percent productivity
growth. Then, it cant afford a 3-percent increase in its total labor compensation
package without having to raise prices or reduce profits.

And one would also assume that prices are already set at a profit-maximizing
level. So, if the firm were to raise prices, there would be fewer products bought,
and there would be fewer jobs, and they cant reduce profits or they would lose
access to capital, and that capital is important for future productivity, and
if you dont get future productivity, there wont be wage gains in the future.
So the rational employer would just explain this to employees.

On average, total compensation would track whatever the growth in productivity
is. Just to give you a concrete example, suppose there is a 3-percent growth
in productivity and a 3-percent increase in compensation and assume health benefits
are 15 percent of total compensation costs, labor compensation costs, and suppose
health care costs are going up 12 percent, then, next year, if you want to have
the same benefits, youre going to have health benefits go up at 12 percentage,
wages can only go up at 1.4 percent. Trust me on the math of this. And that
comes out to a total compensation cost of 3 percent.

Now, if you say, hey, we as workers are willing to have some higher cost sharing,
if it will keep the premium next year only going up 10 percent, then the employer
can afford a 1.8 percent increase in wages. And if they say, hey, were willing
to take drastically higher cost sharing to keep the total premium cost to the
employer next year the same as this year, then the employer can afford a 3.5-percent
increase in wages. So the employer says, Do you want 1.4-percent increase in
wages with the same health benefits or do you want 3.5-percent increase in wages
with drastically higher cost sharing, figures out what that is, what the employees
preferences are and acts accordingly. So thats the only discussion that is
worth having if you believe in backward shifting.

But I dont really believe totally in backward shifting. I dont think it happens
perfectly or automatically or simultaneously, and so total costs are important.
Arnie Milstein said, employers are motivated by attracting and retaining labor
force, and they will have whatever health benefits they need to attract and
retain labor force.

Paul Ginsburg asked if this changes with the business cycle. I think I am always
a glass mostly full kind of person, and I believe we will return to a tight
labor market that we had in the late 90s. And the reason I believe that is
that fertility rates went down by 40 percent in the 60s and 70s, and it just
has a huge effect on the labor force in the coming decades.

So I think this issue of satisfying employees and really listening to them and
giving them what they want in order to attract and retain the best workers will,
in fact, be the conference five years from now, if not the conference today.

But employers are interested in getting value for their dollar. I think thats
a little bit what we heard from Arnie, and total costs are important from a
societal of view that wants efficient use of resources, it wants quality care,
and it has a social value that everyone receive needed care. We dont want overuse,
we dont want errors, but we also dont want underuse of needed care. I kept
hearing that phrase this morning.

We also say we want equity in access to care and equity in the financial burden
of paying for care. So Id really like to congratulate the center on the report
thats being issued today by Sally Trude on cost sharing. I think its a very
valuable contribution.

And now Ill shift to thinking about this from a consumers point of view. It
shows that higher cost sharing, if not carefully designed, falls heavily on
low income and the sick. And I particularly focused on her results on who would
pay more than 10 percent of income under various cost-sharing scenarios. Pamela
Short, you may recall, in JAMA a few years ago, talked about underinsurance,
and she defined that as anyone paying more—having the potential of paying more
than 10 percent of their income out of pocket business of the design of their
health insurance.

What we know from this issue brief is, in the low co-payment options, only 1
to 2 percent, on average, pay more than 10 percent of their income. Its 3 percent
if theres $100, 5 percent if theres a $500 deductible, $1,000—and I think
thats particularly important, given the health savings account that are in
the Medicare drug legislation—7 percent of people would be spending more than
10 percent of their income out of pocket.

But what you really ought to focus on in that issue brief is the row for hospitalized
patients because any of us could get really sick and be hospitalized. So that
gives you some indication of the potential for paying more than 10 percent of
your income and the potential and therefore the numbers of people who are underinsured.

Under current practice, which is a deductible of about $300, I interpolate in
that chart that about a fifth of Americans are currently underinsured. With
$1,000 deductible, a third of Americans would be underinsured, and obviously
there are also the breaks by income, and you see that those numbers are 40 percent,
50 percent for people below poverty.

So I think what you see embedded in that issue brief is, for the first time,
and I congratulate Jim Mays and the Actuarial Research Corporation for generating
those numbers, really good counts of what would be the magnitude of underinsurance
under various cost-sharing scenarios.

Next, Id like to turn to the issue of appropriate care. This year, weve been
thinking about what are the most important things that happened in 2003. I happen
to think the Medicare drug legislation was one of them, so half of you will
tune out, but I thought Beth McGlynns New England Journal of Medicine
Article at the end of June was really one of the key research breakthroughs.
What Beth and her team found is that only 55 percent of Americans get indicated
care. Other people underuse services or they overuse services or there are errors
being made in their care, and it was through a clinical chart review.

Again, some folks at the Mass General have taken that and translated it into
population counts, and youre talking about, about 100 million Americans underuse
health services, about 30 million Americans overuse health services.

What I included in a handout thats available for you at the desk if you didnt
pick it up are several research studies that show the effect of cost sharing
on underuse and overuse, on appropriate care, on inappropriate care. And the
basic bottom line is that cost sharing reduces use of both appropriate care
and inappropriate care. So, in other words, it would, if you increase cost sharing,
you would have more than 100 million people underusing services, and you would
have fewer than 30 million Americans overusing services, but you would affect
both. Its not a fine-tuned tool, at least as currently developed. Also, you
know the costs are concentrated in the top 10 percent.

Is there a way to design cost sharing to promote increased use of underused
services? Well, you would have to vary it by income and by health status, you
would have to vary it by clinical indication—the reason youre getting an MRI—consumers
would have to have access to information that is not now available to anyone,
much less to consumers. You would have to change physician-patient relationships
with patients being in charge of decisionmaking.

Jim Mangum points out these large expenses are people with heart attack, stroke,
trauma, car accidents and that they are no longer in control of making decisions.
The whole health system takes over and makes decisions.

Is there a better way of promoting cost-effective care? And I thought a supply
side strategy, to me, really has a lot more potential than cost sharing to move
us in this direction. John Bertko talked about frequent flyers in ERs and having
cost sharing for emergency rooms. But Mass General uses a call bank of nurses
that call up anyone who is making a frequent use of emergency rooms, screens
them for depression, finds out if theyre complying with their medications,
finds out whats going on, and thats the way they reduce use of ERs.

Inappropriate use of imaging. General Electric gives financial incentives to
Mass General to reduce MRs, and so they give clinical criteria to order the
test.

Disease management. You see an example in this handout by Mark Pauley of how
use of advance practice nurses can reduce rehospitalization.

Paul Ginsburg: Karen, were running low on time.

Karen Davis: So, to wrap up, what would it take? We need research, we
need data on quality, and we need to pay for performance.

Thank you.

Paul Ginsburg: I would next like to introduce Helen Darling, who is
president of the Washington Business Group on Health.

Helen Darling: Thank you. I guess I would like to try to bring everybody
back to the total dollars were talking about. I understand the importance of
the topic "cost sharing." Thats the subject of the day. But we havent
talked enough about the total cost.

And very often when you see data on cost sharing and employee out-of-pocket
costs or beneficiary out-of-pocket costs, thats what you see, and you see it
going up, but you very rarely see, in the same charts, the total cost. I would
bring--I think John Iglehart is here--about a year or two ago he did an article
in the New England Journal of Medicine, in which he put the data together
so you could see the employee cost sharing or the beneficiary cost sharing going
up at the same time that total costs were going up. We just have to remind everybody,
on average, nationwide, family coverage in this country is going to be about
$11- or $12,000 starting in 2004.

We have an average pay in this country of about $27,000. So weve got a really
complex picture of lots of health care or health benefits, and that may be what
they want. Karen may be absolutely right. If they had the choice between money,
more health care, more coverage, they might choose that, and the data are a
little bit mixed on that. But even if you assume its true, the question is,
is that good for the country, and is this what we want to have happen in our
country? So I would hope we could talk about that a little more.

Also, several times we heard needed care versus recommended care or even needed
care versus unneeded care. For those of you who picked up my little handout,
I did have Beth McGlynns table. Its on the second page. And I have relabeled
it, "You need Cost Sharing to get Attention." This shows exactly what
Karen said, and that is we talk about cost sharing as if something is going
to be taken from people that is absolutely needed, wanted, desirable or recommended.

Whereas, with or without cost sharing, about half of the care in this country,
on average, nationwide—it varies by area, and people, and circumstances and
everything—but the question is are we getting recommended care, not just what
somebody thinks, even if it is needed, are we getting what they should be getting?

We also would remind everybody that, in this town, the concept of spending money
you dont have isnt something that seems to disturb anybody.

[Laughter.]

Helen Darling: But, you know, if you are GE, and you are using Karens
math, which I thought were excellent, GE—Ill profile a refrigerator—it
now has about twice the functionality that it did 5 or 10 years ago, and it
doesnt cost any more; in fact, it may even cost less. And its very typical
in this country right now--certainly within the last couple years--to actually
have either flat or declining prices. Certainly, employers cant pass them on.

So the question becomes how are they going to deal with these total costs, and
cost sharing is one of the ways, although we would certainly be the first to
say wed like to change the system were buying into.

I would also recommend to anybody in the audience who did not see on Monday
the op-ed piece in the New York Times by Elliott Fisher, which I thought
did the best job of summarizing some of what Karen said and probably some of
what Mark will say about quality and what were buying into. And as we spend
more money, we have to be thinking about what were buying.

And then finally I would just say a couple other things. Cost sharing, from
our point of view, isnt just about cost, and in fact what you get out of cost
sharing is still pretty minimal, and I would urge anyone whos in the audience
who doesnt work with this full time, when somebody says that a deductible is
doubled or 50-percent increased, were talking about $100 deductible on possibly
a $30,000 or $100,000 admission. So it goes to $200.

Well, maybe thats rough on very low-income people, but as a proportion of the
total cost of what the people are getting, if we dont pay some attention to
that, however we do it, and we dont at the same time make changes in the quality
and inefficiency—also, like Arnie talked about, and Im sure everybody will
talk about—into the system were buying in, we cant afford the system. So
we will have ever more people with ever richer benefits and little or no cost
sharing, and we will have a vastly larger number of people with no coverage
because employers cannot afford to provide the coverage that theyve got without
cost sharing.

Paul Ginsburg: Thanks, Helen.

One thing I thought you might address that I should just ask you about is the
complexity, in the sense how much complexity are employers and employees willing
to tolerate from some of the things that John Bertko and Arnie Milstein were
talking about?

Helen Darling: Well, I dont think anybody likes complexity, and we
recognize that with complexity theres always higher dissatisfaction. We would
hope that we could get better at communicating the complexity, and also, I mean,
getting peoples attention to realize that they have to be active consumers.

They dont have a choice, and its not just because of the money. Its because
of safety, and quality, and quality, and a lot of other things, and efficiencies,
and getting them to understand that it isnt going to be simple, and its never
going to be simple, and thats hard, I agree, but thats where we have to get
to.

Paul Ginsburg: Sure. Thank you.

I want to introduce Bob Berenson, who is senior fellow at the Urban Institute.

Robert Berenson: Thank you, Paul. I apologize for my voice. Its an
allergy. And Im sure youre going to cut me off. I have a lot of things Id
like to say, so just cut me off when you want.

Paul Ginsburg: Okay. Well note when you started.

[Laughter.]

Robert Berenson: For a few sort of introductory comments, I very much
appreciate the more enlightened view to cost sharing that what John and I all
experienced back in the 60s and 70s. From a physicians perspective, what
we had were sort of traditional notions of insurance and moral hazard insurance,
where there was full coverage for highly technical procedures and, in some cases,
no coverage for prevention or office visits, and we ran into distortions and
charges in Medicare with the RBRVS system, had to try to correct all of that,
and 10 years later I dont think its gotten quite right yet. A lot of us have
worked on those kinds of issues.

So Im happy that, in fact, new sort of ideas about cost sharing would, in fact,
try to promote prevention and, in fact, apply cost sharing to things that might
be discretionary or overused. In a few moments Im going to talk about some
of the practical difficulties. So, in general, I think not being grounded in
traditional notions of insurance is an improvement of where we are.

Nobodys really talked a lot about the issue of asymmetry of information. I
think that still is a factor in where you would sort of apply cost sharing.
As Karen said, when youre in a hospital with multiple conditions and the system
takes over, even though that may be where a lot of the overuse occurs, I dont
think we would expect an individual patient to sort of be making decisions on
individual services. There may be a hospital deductible, but not sort of cost
sharing related to individual services there, and yet a lot of that is where
Elliott Fisher, whos gotten a lot of compliments today, points to where a lot
of the probable waste is.

So theres a bit of a conflict between those kinds of services which a consumer
really can make some informed choices, and I think tiered pricing for pharmaceuticals
is a good example of that, where in other services where it might be a useful
break, but where theres really an asymmetry problem.

The discussion about moving from co-payments to co-insurance, one of the things
that wasnt discussed explicitly was the opportunity for co-insurance, rather
than co-payments, to deal with the issue of waste and fraud in the system or
at least sticker shock.

As most of you know, I keep changing jobs. Somewhere along the line I went from
co-payment to co-insurance for prescription drugs, and it was only then that
I really understood the cost or the price of the drugs that I was being asked
to pay for. The problem, it works very well in a pharmacy. Everything is automated.

It hasnt worked well in doctors offices, and Im encouraged that John knows
at least one insurer who wants to do that. It gets very complicated at the point
of service, when you dont know what the insurer is going to approve and pay,
to ask for that co-insurance, and so people then do co-payments, and I think
theres some discussion around trade-offs between co-payments and co-insurance.

But what I really wanted to do today was take the prerogative of a physician
and tell an anecdote. Now, I know that anecdotes are not appropriate because
you can find an anecdote to demonstrate any point you want in health care, but
Im going to demonstrate a point.

[Laughter.]

Robert Berenson: MRIs, I agree that that seems to be an area, imaging
broadly, and MRIs in particular, seems to be an area of great concern about
overuse. And it would appear that, in many cases, they are discretionary. Theyre
done for quality of life, et cetera. I think implicit in that is some notion
that they are technical commodity like services, where you sort of can go to
any MRI place and get an equivalent kind of an outcome.

Two brief comments on that. A friend of mine has knee pain. We could call that
a sports injury, but in fact hes a carpenter. His job is being seriously affected
because he cant bend, he cant lean, he cant do a number of things. He goes
to the orthopaedist. The orthopaedist naturally gets an MRI, which finds something
about his cartilage, but also shows that he has a cyst in one of the bones next
to the knee. So the next thing he knows, hes being referred to an orthopaedic
oncologist, who basically looks at this and says, "I think its a cyst,
but why dont we just repeat another one in 3 months or 6 months or something
like that."

Now, I dont know, the first one would be called the sort of discretionary sports
injury. Thats the one he probably needed to get his diagnosis and to get back
to work. The next one is really sort of, whats he supposed to value? I mean,
I might have cancer or I might not have cancer. A professional is telling me
to get this in 6 months. Thats the one that probably is the discretionary one.
Thats the one I think relies upon professional leadership to define some evidence
standards and to take some responsibility and not sort of to rely on the patient
to say, Im not sure I need the follow-up.

The whole point is these are not neat categories. If, in fact, we go into this
area in a big way, I think there needs to be lots more informed advice and informed
consent from physicians to patients about trade-offs. Prices would need to be
much more transparent than they are now, in terms of permitting informed decisions.

And, in fact, Ill finish with this one. And where we assume these are sort
of interchangeable commodities, like cell phones, in fact, they are probably
not. I dont know how many people, when they were focusing on the Medicare bill,
saw this Wall Street Journal article about shopping for MRIs, where the
reporter—I think this was a very interesting thing—went to, I dont
know, 8 or 10 places. The prices varied from $450 to $3,675. And just a couple
of comments from some of the places she went to.

One of them: No prescription needed for the scan, and valium was free on demand.
The receptionist finagled the discount at 20 percent for us and then made sure
that contrast dye was used to get a clear image. This was the receptionist doing
that.

[Laughter.]

Robert Berenson: And, finally, a couple of these places, their three
expert radiologists could not interpret the scans. We have evidence that breast
screening mammography results are not accurate.

So, whether we move towards more cost sharing or not, there is still a very
large responsibility for whether its health plans or brokers or somebody to
organize and provide information. And I agree with Karen, theres a lot of supply
side responsibility, and where cost sharing can be appropriate, its clearly
going to be used. I think its not going to be very easy to do what I agree
is a better thinking about cost sharing than has happened in the past.

Paul Ginsburg: Ive got a question. Id like to pursue the physician/patient
relationship. Clearly for this to work well, physicians are going to have to
be talking to patients about what their values are and the trade-off.

And in that anecdote, maybe this can happen with someones regular primary care
physician, but its much less likely to happen to some specialist you were referred
to, which doesnt have the relationship. But even with the primary care physician,
are physicians just going to say I ought to do this? Or are patients going to
have to really push them hard? How is it going to happen?

Robert Berenson: When you say do this, you mean provide real sort of
information about choices, informed choices?

Paul Ginsburg: Yes, thats right.

Robert Berenson: Well, physicians say that theyre ready to do this.
It seems to be at least where the AMA is. They want to see a system that relies
much more on out-of-pocket expenses and that theyll step up. I have some skepticism
about the ability.

I guess what Id say now is for better or for worse we have a system in which
most patients trust their physician to make good referrals. That may not be
well warranted, in many cases. I think some of the findings out of the New York
information, that Mark is intimately aware of, suggest that docs dont refer
necessarily to the best quality places. And yet, physicians take that responsibility
fairly seriously and just have a lack of information themselves.

If we go in this direction, and even if we dont go in this direction, I think
there just needs to be much more transparency about quality and price so that
physicians, in fact, under the current little cost sharing and in a new world
of a lot of cost sharing, can be better information givers. I do think there
might be new grounds for suits for lack of informed consent, as people have
to navigate their own way with their own money. That you didnt tell me that
if I went to that place it was going to have a different potential impact and
you should have known. I think there might be some creative kinds of things.

For the most part I dont think physicians have really thought very much about
their responsibilities under a system in which theres lots more cost sharing.
Right now most of the people who have significant out-of-pocket expenses tend
to be affluent. And so the tougher questions about trade-offs between quality
and price havent really been forced on the physician and they would need to
be brought into this discussion.

Paul Ginsburg: Thank you.

Next Id like to introduce Mark Chassin, who is the Edmond Guggenheim Professor
of Health Policy and Chairman of the Department of Health Policy at Mount Sinai
School of Medicine.

Mark Chassin: Thanks, Paul. Ill try to do this in five minutes and
elaborate on some of the other points in the question period.

I think there are four problems, only four, with relying to a significant degree
on increasing patient cost sharing. Its wrong, it wont work, it will do harm,
and its not necessary.

[Laughter.]

Its wrong because I think its wrong to push patients around with big economic
incentives at the point of care when theyre sick and most vulnerable, making
already very difficult decisions even more difficult. Its also, I think, especially
wrong and borderline irresponsible if, at the same time were doing this under
the guise of well, were really trying to improve quality.

I think that our model really here should be air travel. The public demands
excellence in air travel and weve achieved it. Weve achieved remarkable safety
in air travel not by individual air travelers choosing airlines on the basis
of arcane and difficult to interpret crash statistics or maintenance reports
or close call reports, but rather by transforming that industry by two mechanisms.
One is highly effective regulation and the other is a very serious and aggressive
commitment to safety systems. So thats why its wrong.

It wont work. It will clearly shift cost to patients and it will reduce utilization.
And if thats the aim, fine, we should be up front and say that thats the aim.
But it wont lead patients basis better quality. And thats for a variety of
reasons I dont have a lot of time to get into, but just let me hit a couple
of points.

First of all, our measures are just not that good if the aim is to pinpoint
really good quality and lead patients to it. Even when the measures are good,
theyre out of date. In fact, that can lead patients away from a really marvelous
improvement story if providers have really recognized their poor performance
and improved it, and there are lots of examples of that, and a couple that I
can talk about later, if you want.

The third is it is really not feasible because quality is so non-uniform. Some
hospitals are great in one, two, or three things; theyre mediocre in three,
four, and five; and theyre really bad at five, six, and seven.

Now how on earth do we expect patients to choose hospitals at the point of care
either at the time of plan selection, when they dont know what disease theyre
going to get the next year, or at the point of care when they have to sort through
arcane statistics that have different meanings for different diseases. And exactly
the same is true for physicians. So it wont work.

It will do harm, however, because we do know that cost sharing, as others have
commented, impairs health. The best data are from the Rand Health Insurance
Experiment where basically a healthy population, if you had only a simple condition
like hypertension or poor vision were worse off if they were exposed to cost
sharing. And clearly, it has much worse effects on sicker and poorer populations.

Fourth, its not necessary. Other much more potentially effective strategies,
both to reduce cost and/or improve quality, have simply not been tried. I think
that economic incentives need to be directed at providers because the economics
of quality are really quite simple. Overuse, provision of ineffective, unnecessary
services impairs quality and it increases cost. The same is true of misuse,
of avoidable complications, of errors that lead to complications. They increase
cost and decrease quality. The problem is in underuse because underuse, the
underuse of effective care, reduces quality but it also lowers cost. Fixing
underuse problems always, nearly always, results in improved quality at a price.

The two major obstacles to using that quality driven approach to cost containment
have been traditionally, number one, a lack of political will on the part of
any stakeholder to tackle overuse or misuse seriously and aggressively.

And then second, within the delivery system there are enormous economic disincentives
for providers to invent really wonderful ways to reduce overuse. Theres absolutely
no reason in favor, and every reason against my hospital figuring out how many
carotid endarterectomies or bypass surgeries are totally inappropriate and getting
rid of it.

The same is true for the investment thats necessary to reduce errors in a serious
way and improve safety. The same is true in underuse.

So I think that those are the two major obstacles to really aligning the very
simple economics of quality and cost sharing really on the patient side doesnt
play any role at all.

Paul Ginsburg: Thank you.

Mark, one specific question I had in mind, that you might address, is when you
think about the ideas in the Cross the Quality Chasm reports, to what extent
would increased cost sharing of the type that John and Arnie were talking about
facilitate or impede steps taken in those directions?

Mark Chassin: I think again, patient cost sharing, if the idea is to
try to steer patients toward providers who have better services, the problem
is the fog of bad information and bad measures. We dont really know how to
construct measures that really would allow patients to be directed toward better
services at a global level. And its really impossible to imagine patients sorting
through trying to figure out well, I think Ive got heart disease, but its
heart failure its not coronary disease. And its really St. Peters that has
the best record with coronary disease. But then if I have heart failure Ive
got to go across town. I dont see how that works.

Paul Ginsburg: Thank you.

Let me tell you where we are. Weve heard from the four reactors. If you have
additional questions, please hand them to people that will walk through the
aisles.

One problem with this approach is that I have a number of really good questions
that were handed during the break and they were all answered during the reactor
panel. So I need more questions.

Anyway, while were waiting for them, and people can come up to the microphones
too, I want to give an opportunity to John Bertko and Arnie Milstein to say
anything that they have any reaction to these comments.

John Bertko: I guess I wouldnt disagree with Marks comments. But as
I started off, living in the real world, cost is a constraint. Arnies firm
and my firm with colleagues know how to measure one thing pretty well, which
Ill call the efficiency based on episodes, and the quality component that Arnie
referred to being like a 25 percent quality measure and 75 percent reliant on
longitudinal type of stuff may be the only mix we can do right now. The quality
measures are emerging.

But I suggest that in the near-term folks like Ellen Darlings constituency,
and I certainly know our small groups who are interested in that price, are
interested in getting more efficient lower cost insurance. And if we have to
settle for that for the time being, quality being still nebulous, I think we
need to move overhead.

In the best world, back to a comment that Karen made, health care benefit costs
going up at 10 percent a year, I think, is still unacceptable, certainly unacceptable
on the low end of the scale for small employers, and I think reasonably unacceptable
even in good economic conditions for larger employers.

So rather than sit still, many of us are going to continue to push forward.
And I agree its incremental.

Arnold Milstein: Theres a lot to respond to. Maybe I could just arbitrarily
pick a few items.

First, I also agree with Marks points but I dont think I agree with his conclusion.
I think performance failure in the airline industry we solved because performance
failure in the airline industry is highly visible. I think, per Don Berwicks
point, performance failure in the health care industry is extremely invisible,
not just to the customers but also to the health care workers.

So it makes—Ill call it the overwhelming either political or business case
for its solution, highly problematic.

I am a little bit more optimistic that Mark on whether or not we might find
ways of people who are at high risk for needing certain types of hospitalization
of beginning to clue them in before they actually need a hospitalization that
there are differences in their community with respect to the efficiency and
quality of different hospitals.

I think the forerunner for this has been the relatively successful Centers of
Excellence Programs that many carriers have implemented over the last 10 years.
The better of those programs have tried to incorporate measures of quality using
the Medicares risk adjusted transplant outcome database, which was sort of
the first of our better risk adjusted outcome databases to go public.

And then also most of the enlightened carriers are not using price per day or
price per stay, but a longitudinal measure of costs associated with the pre-admission
activity prior to a transplant, the hospitalization. And many of the contracts
look at a 12-month post-discharge window for a total longitudinal cost picture.

If you talk to the folks that run these programs and say well, what difference
does patient cost share make in inducing patients to select the Center of Excellence,
which in almost all cases rate more highly on both risk adjusted outcome and
risk adjusted longitudinal cost, they will say it makes a big difference and
that those employers that allow the insurer to typically positively incentivize
folks to use these so-called Centers of Excellence, it tends to increase the
frequency with which those patients use the transplant center by about 30 percentage
points. You go from about 50 percentage point yes, I will use the Center of
Excellence, to about 80.

So I think we do have—its a cup half empty/half full. Obviously nobody prone
in the back of an ambulance is a consumer that cares about cost sharing. But
its also true that most of what ails America are chronic illnesses and its
possible very far in advance of getting into trouble to I think select a hospital
and a physician thats in a favorable tier with respect to either managing your
particular chronic illness or, if you have multiple chronic illnesses, doctors
or hospitals that more efficient and have higher quality longitudinally in managing
multiple chronic illnesses.

I had a chance to talk with Mark about this at the break and I think it would
be helpful for all of us to hear some of his thoughts on how, if patient selection
of better performing providers is something we dont have to worry about, some
additional thoughts from Mark on what would induce American doctors and hospitals
thats politically credible to get across the chasm quickly. Because eventually
well get across a chasm. The question is will it be in 10 years or will it
be in 100 years? And obviously most of us here would like it to be in 10 years.

If patients arent selecting better performing providers, how are we going to--I
know Mark has a good answer for this because he gave me one, but Id just like
others to hear it.

Paul Ginsburg: Helen.

Helen Darling: Just two points. One, we talk about hospitalization and
the cost sharing. In fact, thats at least in the employed world. The frequency
and even the amount of money when theres a hospitalization is very modest.
So its really on the outpatient side and prescription drugs and things like
that. So I think its important to keep that in mind.

The second thing is that weve had many, many years to correct the system and
change the supply side, which isnt to say that we shouldnt be doing that.
But unless we can do it immediately, we feel we have to have cost sharing as
part of it. And if the system gets reformed and the supply side turns out to
be managing everything, which is obviously one of the purposes of managed care,
then we dont need cost sharing.

But in the interim, whether its this year or next year only—and I wish we
could change all of these things faster--we need cost sharing to at least change
some of the incentives within the system.

Paul Ginsburg: Karen?

Helen Darling: Just a couple of quick points. Weve done a survey of
physicians about quality of care. 15 percent of physicians say that they always
or sometimes have information on the quality of a specialist they referred their
patients to, 85 percent say they rarely or never have such data. In terms of
quality of their own care, 7 percent of physicians think it should be made available
publicly.

So theres where we are with both the availability and the willingness to make
quality data available.

Now insurers have good information on total longitudinal costs and I love this
concept of longitudinal costs over an episode or for a chronically ill patient
over a year. So I think we need to really generate data on that. And insurers
could do a lot better job doing that. But even that needs to be risk adjusted.
So thats not a trivial problem.

But I think the real solution to this, to respond to Helen, is for managed care
plans or insurance plans to create their own elite networks of providers in
that upper quadrant in Arnies scatter diagram. So those that are in the top
25 percent of quality, those that are in the top 26 percent of efficiency, create
a network of those. And as Mark says, a hospital may be in for cardiac care
but not in for oncology care if they have different quality and cost performance
on different services that they provide.

But I think for the patient to go and find the right hospital or the right doctor
is really going to be less effective than for the plans themselves, and for
Medicare, to identify elite networks of high performing health care providers.

Robert Berenson: I just wanted to enter into this a little bit.

I agree basically with Arnie, that the one sort of desirable area where I can
see cost sharing use is where the health plan or Medicare does its work to identify
high performing entities and then uses differential incentives to try to steer
in some way.

Medicare has also had experience with what used to be called Centers of Excellence.
Some of the hospitals objected to not being in the category of excellence so
they had to change the name.

But just one of the realities in traditional Medicare, and if we still have
traditional Medicare, is that a lot of people do have their cost sharing bought
down through a variety of mechanisms, whether its retiree coverage or Medigap
insurance. And sort of the traditional approach of giving a cost sharing break
is less available in Medicare.

I would point out I was looking through the bill yesterday and there are two
new Medigap plans that are being designated which essentially buy down part
of the cost sharing, part of the 20 percent, with the idea that people might
want to see that as new alternatives to first dollar coverage.

So in any case, that is happening there.

Paul Ginsburg: Actually, Id like to ask John and Arnie about whats
the current state of the ability of health plans to make these identifications
of who the high-quality efficient providers are? And if you could just talk
about where we are now, where we might go, and the degree to which people changing
around, the degree to which thats a real hindrance in doing that.

John Bertko: Let me start and Ill do it on a health plan basis and
then Arnie can perhaps do it on the stuff that I know his company has done for
employers.

Keep in mind that we are what is called a super regional plan. So in about 10
markets weve got pretty deep penetration. By that I mean we have lots of members
covered. We cover fairly large networks. And we have a pretty decent number
of—Ill use the term episode for the longitudinal description—episodes per
doctor.

On that basis if you can remember back to that really cool scatter graph that
Arnie did, I can probably identify folks in the top half in terms of cost, or
maybe even better, pretty good numbers on that. I can probably eliminate some
of the quality issues on one side of it, but I wouldnt even begin to say that
I can squeeze into the quadrant, the highest quadrant that Karen says is the
best. I mean, we all want to go there but I just cant get there yet.

The limitation that we have is there are a fairly significant number of physicians
at least for whom I dont have enough episodes. Ive got to say not enough data.
We have addressed that problem by trying to access other much larger databases
with some success, and I think there is movement along there.

So we have a product that is both of a long care. So we have a product available
in two of our markets right now. Its actually as of 1/1/04 its going to available.
And were going to roll it out to another 10 markets during 2004. I would say
for our competitors theres probably a dozen or so that are in a similar status
of rolled out or in a planning stage.

So the good news is were on the way. I would give us perhaps collectively a
B-plus for effort and execution on this but were not quite there.

Arnold Milstein: I think the current methods, particularly at individual
physician level, for evaluating longitudinal efficiency and quality are at an
extremely rudimentary state of development. Obviously the question in terms
of going forward is, understanding theres a lot of noise around these measures,
is there enough signal for them to at least be directionally correct? I think
the jurys out on that. Thats what I hear from the health services researchers
who are working on longitudinal efficiency measures.

With respect to quality of care, I think things are equally rudimentary. Beth
McGlynn, whose research has been cited here, has been working on testing a version
of her QA tool method of quantify overall rate of compliance with evidence-based
guidelines that could run on claims and enrollment data only, including pharmacy
claims. Thats obviously going to be a huge step forward because right now the
only way of reliably evaluating quality would be a medical record review. Thats
what Beth used in her research but thats obviously very likely going to be
deemed unaffordable.

So what are we stuck with in the meantime? We have early attempts to take evidence-based
medicine and pass that through claims databases. The Hawaii Blue Cross plan
has been using this for about five years to differentially pay primary care
physicians. Theres something like up to 10 percent now variation in what physicians
get paid based on their overall rate of compliance with a basket of evidence-based
guidelines that can be tested using claims data. But were clearly at a very
early stage.

The other comment that John made I very much agree with, that as you begin to
try to apply current first generation methods of quantifying longitudinal efficiency
and quality of care compliance with evidence-based guidelines, you do face this
terrible problem of adequate cell size, particularly at the individual doctor
level.

I think that does have the interesting effect of tipping the initial ability
to do this more toward regionally dominant plans. Its not by accident that
the plan that I used in my scattergram was one that is regionally dominant in
the Pacific Northwest. They have plenty of denominator size per doctor to run
the calculation.

But if were going to move forward on a national basis, its going to either
require intercarrier cooperation or its going to require CMS to reevaluate
its long-standing policy of refusing access to its Medicare fee-for-service
database, which obviously has a lot of denominator size in it, in a way that
would allow identifications of individual physicians. By policy decision CMS
decided in 1985 to stop doing that. And that is a policy decision thats not
locked into regs. But whether its a changeable policy decision is unknown.

Paul Ginsburg: Mark, is it on this point?

Mark Chassin: A couple of points that have been raised that I wanted
to comment on.

I wanted to start with the question of measurement of quality and where the
current state-of-the-art is and where it might go if measures were really good.

I think that Arnies right, that the current state-of-the-art in measurement
is rudimentary but very uneven. Its much easier to measure underuse. And in
fact, virtually all of the activity around measurement as it relates to almost
any kind of pay for performance is around underuse. The research that was cited,
the Rand research, 85 percent of the measures were measures of underuse problems.

NCQA, CMS all focus on measures of underuse, in part because its politically
easy. Its politically easy because everybody wants to get appropriate care
and doesnt like when they dont get appropriate care, and thats very nice.
And if you put incentives in place to make that happen, that improves quality.
But it also increases cost and it will make Helens problem a lot worse.

Disease management was invented by pharmaceutical companies to increase pharmaceutical
use, and it works.

The problem with measurement is that it gets much more difficult to measure
overuse. Unless youre talking about antibiotics for colds, which a few years
ago consumed one-fifth of all ambulatory antibiotic use—one-fifth. The likelihood
of getting an antibiotic prescription for a cold if you went into a doctors
office and you were an adult was 50 percent if you went in with a cold.

That measurement is much more difficult because weve got overuse and underuse
of exactly the same service in the same geographic areas. It takes much more
clinically sophisticated measures.

Measuring misuse, which is what kills people in hospitals, is even more difficult.
We havent really made many serious efforts to do that.

When you do have good measures, and the best and longest continuing program
that I know of that produces really good measures on quality is the New York
State Cardiac Surgery Reporting System, which has been producing surgeon specific
and hospitals specific risk-adjusted death rate data following bypass surgery
for more than a decade.

The way that information has been used, and its been used with amazing effectiveness
to reduce mortality statewide. New York achieved the lowest rate of bypass surgery
mortality four years after that program was established. And the study just
published a couple of months ago showed that that standing has been maintained
through 1999, not through any use of those data that anybody can measure, by
consumers, by managed care plans, or any other stakeholder to move patients
around in a shell game, but rather with the help, enthusiastic cooperation,
sometimes coercion of the state health department, to force hospitals with really
poor performance to improve. And they did. And that, I think, is a model thats
not seen any expansion whatsoever.

The last point that I wanted to make is yes, Arnies quite right that air travel
failures are quite visible. And thats what reinforces the publics amazingly
high demand for excellence. That in fact, in my opinion, is the missing ingredient
in health care. The public does not demand excellence. So none of the folks
that depend on the public, whether its employers or health plans or hospitals
or doctors are under a whole lot of pressure to produce higher quality.

Paul Ginsburg: Thanks.

I had a point that I wanted to make in this discussion and then I got a question
shoved in front of me that says it better than I. Or at least introduces it
better than I. So let me read this.

I found a quality low-cost auto repair shop. I recommended it to friends. They
went, too. Now I have trouble getting appointments.

[Laughter.]

Paul Ginsburg: Access to this shop--well, I dont think I have to finish
it.

So this brings up the issue about what if we have some success in identifying
the high-quality providers and success in motivating people, whether its through
the information or through the incentives of refined cost sharing, to go to
them, how much capacity do they have to do more?

I think the answer is that for the quality of the system to improve, the real
improvement is going to come from the physicians or hospitals that lose patients,
that see as a result of their loss of patients--or maybe, in the case of the
CABG data, just are embarrassed because of the low scores theyre getting--to
change how they practice. Which in a sense implies that for system quality to
improve, its going to take a long time because its going to have to be based
on the perceptions of lower quality providers that their low quality is hurting
them, or that they are low quality, and then doing something about it.

Karen.

Karen Davis: Again, I dont know that the only way this can work is
through market incentives and losing patients. Its interesting, the Wall
Street Journal today the write-up of the National Health Services and Englands
adoption of IT, so that by 2008 they will have electronic medical records that
are standardized across all of England.

So I think, first of all, you need, physicians and hospitals need comparative
data on their quality performance thats comparable so that they know whos
doing well, how are they doing, where do they stand relative to that. And theres
a pretty competitive drive, because thats how physicians made it through medical
school, to be in the top half of the class. Theres only going to be 50 percent
in the top half, but the whole group can move up if they know what the best
practices are.

So information is one thing.

The second thing, Ive really been impressed, again looking around the world,
at how well learning collaboratives are working to improve quality of care.
Once youve got a best practice in New Zealand for primary care physician management
of chronic obstructive pulmonary disease in Australia, learning collaboratives
for emergency rooms on effective time to treatment and pain management, in the
UK learning collaboratives on both primary care and cancer care markedly reducing
waiting times and improving quality.

And its interesting, even though this started, in my view--I know others did
it--with Don Berwick in the U.S., these are really taking off like wildfire
in these other countries and less so here.

So I think its really going to take a boost--give providers the information,
the tools they need to do better. Its not just financial incentives or losing
market share that motivates them. They do want to do better by their patients.
And we need to do a better job of giving them the tools, giving them the training,
identifying the best practices that they can incorporate.

Paul Ginsburg: John.

John Bertko: I guess Id like to address a part of your worry and give
you some what, to me I interpret as good news. This is in the kind of network
analysis that weve done for longitudinal studies.

The first part of the good news is that when you look at specialists, most specialists—and
Ill say thats in the 70 to 80 percent range—are clustered pretty tightly
around the mean of what I would call acceptable cost or good cost for care.
The outliers are a relatively small part.

We did this step-by-step by specialty, and as you try, you get to a point about
20 percent or so. you get almost no more dollar oomph or reaction diving below
that 20 percent level. If you believe that in most urban areas at least that
specialists by many measures are abundant, then you should probably think you
have less worry that youd run out of spaces, in the analogy for the auto care.

Primary care physician is entirely different. Many primary care panels are extremely
full. So Id say for a while at least we have the ability to shrink while were
in the game. But the learning cooperatives and the other things that Mark Chassin
said could be done to, in fact, improve individual physicians.

Robert Berenson: This is a time when Id like to sort of cite an insight
I heard at a recent conference by David Lansky of the Foundation for Accountability
who clearly doesnt--they do a lot of focus groups and surveys on the consumer
side of what theyre looking for.

And he had this very interesting point, which is that the focus groups that
they did, the consumers wanted information—basically, they didnt want the
information to switch doctors. They wanted their own doctor to do better. I
think that is consistent with what Karen said and some things like that.

People dont want to—it is so hard to get the right relationship. The doctor/patient
relationship is somewhat unique and special. And things about comfort and trust
and things like that sort of dominate over objective measures of quality. So
people dont want to—when theyve finally found the doctor theyre happy with,
its sort of oh, he or she is not so good on such and such, Ill move. Rather,
they want that doctor to do better.

I think we need to sort of take that in mind, whats the information for? I
think we need the information. But I dont think it largely is about having
this open market where people are just sort of moving at the point of service
to different providers.

Clearly, it varies, the kind of relationship you have with your primary care
physician that ideally goes over decades is different from when you need a heart
bypass or an organ transplant, which is a onetime event presumably. And so I
think theres different appropriate uses of incentives and management. But a
lot of what needs to happen really is on the provider side.

Arnold Milstein: Just elaborating on the question about capacity constraints
and the autobody metaphor. First of all, I agree with Johns point about their
major additions in capacity by the better performing providers are probably
not necessary in the near-term.

And secondly, I think its the point one can pull out of the Quality Chasm Report
is that it isnt like were talking about--the situation were currently facing
are not well--the best performing providers on quality and efficiency still
have some major opportunities to improve throughput. And one of the interesting
aspects to some of the learning collaboratives has been shared opportunities
to improve throughput both in physician offices and in hospitals.

Even in relatively whats viewed to be kind of a maxed out, in terms of current
capacity, subsystem like primary care, people who have begun to think about
applying engineering principles to primary care and have looked at early experiments—Im
talking about people like Tom Bowdenheimer and Don Berwick—they believe that
there are very substantial opportunities to improve throughput while improving
quality and longitudinal efficiency in primary care.

I love the term theyve come up with, opportunities for reengineering primary
care offices. They refer to it as the de-hamsterization of American primary
care physicians. I think the opportunities are profound.

Paul Ginsburg: Thank you.

This is probably a good time to turn to the audience for questions. I will ask
a couple but people that would like to come up to the microphone can start doing
that.

Heres a question about income tiering cost-sharing. Milstein mentioned different
out-of-pocket caps by income. But lower income families will face larger relative
initial costs of deductibles or coinsurance payments. Are businesses varying
deductibles or copayments for lower income workers to ease initial access?

Arnold Milstein: Not yet. Most of the income variation that Ive seen--and
I hope Helen will join in on this--have been focused around, as these so-called
consumer directed plans are implemented, its focused on variation and maximum
out-of-pocket.

Helen Darling: First of all, you still have companies left that from
the old days had a differential. Typically it was between hourly and salaried,
so that usually the hourly workers paid less, whatever their contribution would
be lower, their cost sharing, that kind of thing.

Thats really as much of a leftover. Some of those things went away because
in managed care there was no cost sharing. So now companies are going back and
saying if were going to put them in, then shouldnt we be doing something thats
different for the people at a lower wage?

Its still kind of controversial because their questions, a lot of questions
especially in households where usually two people work, how do you do it? Because
its done on wages. And yet you have somebody sitting next to you who has a
working spouse and theyre living up in the McMansion and all that usual stuff.

But we do see more interest in that. We also see the possibility of things like
the out-of-pocket limit being a percentage of wages. So for example when I was
at Xerox, the deductible was 1 percent of pay and the out-of-pocket maximum
was 4 percent of pay.

So those things have been around. I think they will become more important if
the cost-sharing momentum continues.

John Bertko: Id just like to add here that theres clearly a gap on
this between large employers--in fact, what we call jumbos, 5,000 or more--and
the small employer group. We are certainly aware of some large employers that
have various kinds of income related things.

On the small employer stuff, a 10-life employer, the purchaser is the owner
and he or she has virtually no incentive to have these kinds of things. On top
of which they have rudimentary if any kinds of payroll systems. Theyre probably
using something like Quickbooks to write it and are not The going to be able
to administer anything like this.

So its a good idea. An d in the interest of equity in particular, the maximum
out-of-pocket lids are probably among the very best ideas in order to keep what
might be a $2,500 or $2,000 max out-of-pocket at that level for the people least
able to afford it without creating too much controversy.

Karen Davis: Since weve got a Washington policy audience, I just wanted
to toss up one thing I think we should be thinking about, tax credits rather
than tax deductions for high out-of-pocket expenses related to income. In other
words some percent, not 100 percent, but 75 percent, 90 percent of expenses
over 10 percent of income being a tax credit through the personal income tax
system.

That is a way in which instead of expecting Medicare, expecting employers, to
protect the financially most vulnerable, where you could provide at least some
threshold of financial protection for people with high out-of-pocket expenses
in a way thats better than the current deduction for expenses in excess of
7.5 percent of income. So its the difference between the credit and the deduction.

Paul Ginsburg: Also, your point might be relevant to the new health
savings account, where an employer or an employee can contribute to an account
to draw out to pay the deductible is, in a sense, an exclusion. And if that
were a credit, that would become more powerful.

Karen Davis: And a credit tied to income.

Paul Ginsburg: A credit tied to income would be a more powerful thing
for low income workers.

How do employers and plans intend to get the right information to employees
and members in order to facilitate more informed decisionmaking? Do you want
to start that, Helen?

Helen Darling: Yes. Actually most large plans now, and most large employers,
I would agree its large, but even for small employers, they can get it through
health plans, are getting information online available to them. I actually find
it fascinating, some of whats available. If any of you have seen SBEMO or Aetnas
Health Navigator. And every plan—Im sure Humana has one. Feel free to name
yours.

John Bertko: Ours is called a "Wizard."

Helen Darling: Basically they all have them. And Ill tell you most
people, if you havent seen them, you will be amazed at how much very information
is on it. We can debate about its lack of perfection. But whatever is there
is now being fed into these systems.

For example, and maybe the Wizard can do this too, but Ive seen the Aetna Health
Navigator. You can put your ZIP code, you can put in how many miles you want
to have for say which hospitals. If youre going to have a baby you can specifically
say I want to know the delivery hospitals within this area. What do I care about?
I care about complications rate and nosocomial infection rates and things like
that.

Then you hit a button and it ranks and spits out the hospitals within that
mileage distance from your ZIP code. I actually sat there and watched—for those
of you who know the Wall Street Journal and Barbara Martinez, who has
had her baby by now, but she was just about to deliver. We did it for her with
maternity in this big room. She was gutsy to do that.

And it turned out that the hospital she was going to was like number seven out
of eight. So I said, is this going to change your plans.

Theres a lot more information now than ever before and I think that is not
perfect, but it is very useful. And its not for everybody. There will be people
who dont understand it. But an amazing number of people do understand it. And
we tend to underestimate what consumers are interested in using and theres
more data to support that.

Paul Ginsburg: Helen, do you have a sense from employers as to how extensively
the information theyre putting out is being used?

Helen Darling: No, we dont because the employers may not necessarily
even measure it and wouldnt have a way. The plans can tell you how many people
have gone to the site, and how long theyve stayed there, and what they have
gone through and that sort of thing. But I havent seen the data.

John Bertko: I would only mention here that one of the things that we
are trying to push very, very hard, including price discounts, is positive enrollments.
What that means is when you sign up you dont get to just default into the same
plan you were in last year. You have to sit and think about it.

When we tested this stuff out, we got pushback saying youre going to make me
spend 20 or 30 minutes thinking about my health policy choice. And we go yes,
how long did you spend looking for that new car? 16 hours.

Arnold Milstein: I do some work for large labor unions who are operating
their own health plans, and have a chance to hear from people representing less
educated and lower income consumers. And what Im hearing from them is that
they want decision optimizing help that is active rather than passive. What
theyre saying is please dont force my people to have to go and navigate a
website.

Their metaphor is more analogous to like a Kmart blue light special that would
also address--they say quality opportunities, not just cost saving opportunities.
That would, on a continuous basis, mine information from the claims database,
from nurse line interactions, maybe from a health risk appraisal that was filled
out upon enrollment, and continuously identify opportunities for enrollees to
make different choices, whether its something simple like switch to a generic
drug or whether its a link-up, now that you have your first diagnosis of heart
disease heres a list of hospitals in New York that score very well in your
neighborhood on risk-adjusted mortality.

What Im hearing from people—Ill call it the worker or the consumer side of
the market—is give us active decision support tools. Dont make us come to
you.

I think an illustration of this is this support tool being offered by—its called
Resolution Health. Its called Direct to Member that on a continuous basis flags
opportunities for either affordability improvement or quality improvement or
both, depending on what youve designated with your fax or e-mail, et cetera.

Helen Darling: Just to build on that point that Arnies making, we do
know that companies like General Motors and Verizon and others, who have used
a sort of designated blue ribbon plan, in fact, there is migration to those
plans. So employers are doing that. Theyre making that easier to choose.

Question: Hi, Alwyn Cassil with the Center for Studying Health System
Change. I cant pass up the opportunity to have three physicians on a panel
without asking this question.

That is that it seems to me if were ever going to get this right, that we have
to get the provider incentives right. Whats going on out in the marketplace
right now is moving in the opposite direction, in most cases, from where we
should be going. With the exception of some of the very fledgling pay-for-performance
initiatives, we have moved for all intents and purposes back to fee-for-service
payment.

In our recent site visits to 12 nationally representative communities around
the country, we have detected this increase in what I will use euphemistically
refer to as physician entrepreneurship where they are adding more and more capacity
to provide services within their office-based practices to the degree of adding
MRI capability in a large group.

What do you do about that? What kind of payment mechanisms, if were going to
I guess kind of bribe the providers to do the right thing, how do we design
payment systems to keep them from doing the wrong things?

I looked at this a couple years ago and could find almost no research whatsoever
on developing models like that. Weve got great incentives for overuse. Its
called fee-for-service. Weve got great incentives for underuse, which is called
capitation. Weve got great incentives for no use, which is called salary.

But what we dont have is any even experimentation or ways of thinking about
organizing economic incentives that reward excellence. Thats across all three
of the quality domains.

So I agree. I think its an enormous problem because I think were really foregoing
the enormously powerful impact on action that economic incentives have. Because
not only do we not have economic incentives that reward excellence, but weve
got a completely fragmented and multidirectional set of incentives that act
on very different ways on different parts of the delivery system. The incentives
on hospitals are different for different payer groups. Theyre different for
the same patient, for the physician and whether the physician is outside or
inside compared to the hospital.

So there is no way of taking advantage now of the very powerful effect of economic
incentives in aligning them to produce better quality.

Karen Davis: Theres a sense that we cant do anything about overuse
in a fee-for-service system. The Japanese systematically reduce the fees every
year on those services they think are being overused. And they get immediate
reductions in those services. In Medicare were to move away from strictly a
resource based relative value schedule and use that power of juggling the fee
schedule, you could make a difference.

And the same way with the DRGS. Were talking about cardiac surgery hospitals,
orthopedic hospitals, oncology hospitals. Were not talking about trauma care
hospitals, burn care hospitals. Its clear that certain things are profitable
and certain things are not profitable. And the things that are profitable, theres
an expansion in capacity to provide them.

If you really want to do something about it, youve got to look at your rates
in the raw. And managed care plans use the Medicare fee schedule for physicians
as a basis for which they base their payments. So if Medicare would tackle this,
you could see a ripple effect through the private sector as well.

Arnold Milstein: I think this could be a major source of accelerating
progress in both quality and longitudinal efficiency. But the resistance to
this is not simply unenlightened insurers or purchasers. There is--in California,
where we finally were successful at getting, we hope now, up to 10 percent of
HMO premium to vary based on quality scores in California medical groups. That
was a six-year battle.

And among the most aggressive opposers of that initiative early on were physician
groups who were very wary about both performance transparency, and most importantly,
potentially not being in the favored group.

So it would be, I think, a very important method of inducing faster progress
in health care quality and efficiency, but the resistance is not only on the
buy side of the market. Theres also great reluctance on the sell side of the
market.

So I m very much supportive. Lets use the Medicare demonstration with Premier.
Thats an example of a quality based—I mean, there are 1,500 Premier hospitals.
Something like 220 have signed up to be part of this tournament and potentially
risk being paid less if they dont improve their performance. So its a very
good solution, but at this point the reluctance is not only on the buy side
of the market.

Robert Berenson: Let me just make a couple of points. I think Karen
is exactly right. I think we just need to be much more creative with the basic
payment systems, not just the marginal incentives for quality.

I interviewed some of those groups that Alwyn was talking about. I guess I cant
be very specific here but there was one cardiology group that I talked about
who sort of do a very good job of being entrepreneurs around stents and other
activities in hospitals. Lets just keep it vague like that.

I talked to them about what their investment was in disease management to keep
people out of hospitals and they looked at me like I was crazy. That wasnt
what they were doing.

Clearly, the DRG system is rewarding—I mean, I think theres been increasing
recognition that it seems to be skewed in favor of procedures away from medical
DRGs. I think theres a fundamental issue of paying each incremental service
at the average rate so that you develop winners and losers. And I think Im
encouraged to hear about the Japanese experience with the margin, changing rates
and getting behavior change. I think thats what we should be doing with the
basic payment systems. Im all for, at the margin, giving incentives. But they
may fly in the face of how you keep the doors open.

PARTICIPANT: Leighton Ku with the Center on Budget Policy Priorities.

I have a question about how good the evidence is, particularly from larger scale
studies, about whether cost sharing really makes consumers smarter and more
selective. Certainly the Rand study suggested that in general cost sharing did
not make people choose more appropriate care. Studies that Ive read recently
on prescription drug tiering, which is I think the main area where weve seen
sort of the selective cost-sharing, indicated that—and I particularly remember
a Rand study that came out about a year-and-a-half ago—suggested though tiered
cost sharing was associated with reduced reduction of drug use and more unfilled
prescriptions, it did not increase generic drug use. That in fact, everything
fell, basically proportionally.

So that people didnt respond to the incentives the way that we expect them
to respond to. My interpretation is that a major reason is because its the
doctor whos choosing the drug, not the consumer in the first place.

Weve talked a lot about the ability to use cost-sharing in copayments or coinsurance
to make people more selective for higher quality or more efficient care. I guess
I dont see the evidence that it actually works.

John Bertko: Part of this goes back to what information is available?
And Ill just keep you one of the things that were doing.

We have, for drugs, we scan through the database and look for people who would
have a choice between either a lower cost brand or generic drugs. And through
interactive voice response, a computer calls people up and very anonymously
says gee, youre taking this. Perhaps youd be interested in saving some money
by taking the substitute.

Believe it or not, our feedback has been they like anonymous calls and I think
its up to about 19 percent of the calls made show up in the next script as
having the lower cost drug. So I think its a mixed bag here of what people
know or dont know.

The second part of this—first of all, the Rand experiment is now 23 years old,
something like that, so its almost ancient history. On the consumer directed
parts there is slowly emergency evidence on a relatively small basis, the 25,000,
30,000 people that we have and perhaps the 100,000 that Definity Health has,
that people in those plans change some of their behavior. And particularly in
outpatient, particularly on site of care.

I wouldnt hold that up to be anything close to the strength of the Rand report.
I think if were looking for places to do further investigations, this is one
of them thats out there. And folks like us would be happy to cooperate.

Helen Darling: I think a lot of the information that people work with,
like us in the real world, isnt published because theres no reason to publish
if youre working in a PBM. If you look at the PBMs data on changes, when they
change cost-sharing say to mail-order, generic, anything, they have actually
pretty dramatic changes in behavior, if its financial and theres an option.
I dont have the data on the top of my head. But theres a reason that everybody
is going to these things. It isnt just to get a little more money. Its actually
to change behavior.

In prescription drugs in particular is where you see the strongest Thomas relationship.

Paul Ginsburg: I just have one comment I wanted to make about the Rand
study. It is old, but I dont think thats—theres another significant issue
in its relevance today, which is the fact that it was a randomized controlled
trial. They selected individuals, gave them different health insurance plans.

Today, its a very different situation. An entire company changes its cost-sharing.
So all the people, a lot of peoples neighbors, have higher cost-sharing. cautionary.
Its possible that well get a very different response because its so uniform
or so universal, for good or for bad. In a sense, getting physicians attention
a lot easier when a lot of people have more cost-sharing than when one person
who has the good fortune to be selected for this clinical trial.

Weve reached the end and I just want to say that the speakers and the reactors
have done a marvelous job. Its been fascinating just listening to them talk
about these issues. I want to thank them.

[Applause.]

Paul Ginsburg: I also want to urge you, I think those green forms in
front of you are evaluations. We do make good use of them and theyre that much
more valuable if we get a high response rate.

Please sign up for—if youre not on HSC
Alerts for our publications, please do that.

Again, I want to thank the Robert Wood Johnson Foundation for its support of
HSC and this conference. And at RWJF.org is
the webcast of this thing.

Our next conference is going to be on March 18th and its going to be a conference
about market change with results from our round of site visits. And this conference
is being put on in partnership with Health Affairs who, in March, is
also releasing a special or thematic issue on market change.

Thank you very much.

[Whereupon, at 11:58 a.m., the meeting was adjourned.]

Participant Biographies

ROBERT A. BERENSON, M.D., F.A.C.P. - Senior Fellow,
The Urban Institute
Robert Berenson is a senior fellow at The Urban Institute and is an adjunct
professor at the University of North Carolina School of Public Health and the
Fuqua School of Business at Duke University. Previously, he was director of
HCFAs Center for Health Plans and Providers and served as acting deputy administrator
of HCFA. Berenson came to HCFA from The Lewin Group, where he was a vice president.
Prior to joining Lewin, he was a founder, board member, and medical director
of the National Capital Preferred Provider Organization (NCPPO). Berensons
areas of expertise include Medicare, physician payment policy, managed care
and medical ethics. He has authored numerous articles in nationally recognized
journals on these topics. He was recently chair of the Managed Care Panel on
Health Care Quality of the Institute of Medicine. In 1993, Berenson co-chaired
two working groups as part of the Clinton White House Task Force on Health Care
Reform. Berenson also worked on the Carter White House Domestic Policy staff.
Berenson, a board-certified internist, practiced for 12 years in a Washington,
D.C. group practice. Berensons B.A. is from Brandeis University and his M.D.
from Mount Sinai University School of Medicine.

JOHN BERTKO, F.S.A., M.A.A.A. - Vice President and Chief
Actuary, Humana Inc.
John Bertko is responsible for coordination of actuarial practice and projects
for Humana Inc. Bertko manages the Corporate Actuarial group and directs the
coordination of work by actuaries in Humanas major business units, including
Public Programs, Commercial, Individual and TRICARE. This work includes assisting
business segment actuaries and senior management in developing pricing strategies
and in product development. In addition, he assists the Government Relations
department with actuarial analyses of legislative and regulatory proposals.
In his current role, he has responsibility for Humanas actuarial use of risk
adjusters and discussions with the Centers for Medicare and Medicaid. Bertko
has also served in several public policy and risk adjustment advisory roles,
including presentations for AcademyHealth, the American Academy of Actuaries
task forces, the Society of Actuaries and the American Association of Health
Plans. In 1993, Bertko served as an actuarial auditor of the Clinton Health
Care Reform proposal, working with senior Administration staff. For the American
Academy of Actuaries, he served as a board member from 1994 to 1996, as vice
president for the Health Practice area for the 1995/96 term and as a member
of the Actuarial Board for Counseling and Discipline from 1996 through 2002.
Bertko is a fellow of the Society of Actuaries and a member of the American
Academy of Actuaries. Bertkos B.S. in Mathematics is from Case Western Reserve
University.

MARK R. CHASSIN, M.D., M.P.P., M.P.H. - Edmond A.
Guggenheim Professor of Health Policy and Chairman of the Department of Health
Policy, Mount Sinai School of Medicine
Mark R. Chassin is the Edmond A. Guggenheim Professor of Health Policy and chairman
of the Department of Health Policy at the Mount Sinai School of Medicine. He
is also executive vice president for Excellence in Patient Care at the Mount
Sinai Medical Center. Before coming to Mount Sinai, Chassin served as Commissioner
of the New York State Department of Health. He is a board certified internist
and practiced emergency medicine for 12 years. He is a member of the Institute
of Medicine of the National Academy of Sciences and co-chaired its National
Roundtable on Health Care Quality. In 2003, Chassin led a newly launched initiative
of Mount Sinai Medical Center to create models of world-class excellence in
patient care that produce substantial, measurable, and sustainable gains in
all aspects of patient care: safety, clinical outcomes, the experiences of patients
and families, and the working environment of caregivers. In 2001, Chassin became
one of the first honorees as a lifetime member of the National Associates of
the National Academies. He also received the Founders Award of the American
College of Medical Quality and the Ellwood Individual Award of the Foundation
for Accountability. Chassins research focuses on developing measures of the
quality of health care, using those measures to improve quality, and understanding
the relationship of quality measurement and improvement to health policy. Chassin
received his undergraduate and medical degrees from Harvard University and a
masters degree in public policy from the Kennedy School of Government at Harvard.
He received a masters degree in public health from the University of California
at Los Angeles.

HELEN DARLING - President, Washington Business Group
on Health (WBGH)
Helen Darling is president of the Washington Business Group on Health (WBGH),
a non-profit organization devoted exclusively to providing practical solutions
to its members most important health care problems and representing large employers
perspectives on national health policy issues. Its 175 members represent more
than 40 million employees, retirees and their dependents. Current issues of
concern are uneven quality, inadequate patient safety, health care costs, and
legislative or regulatory actions that drive up costs or increase risk. As president
of the Business Group, Darling was named one of the "100 Most Powerful
People in Health Care in 2003," by Modern Healthcare. She is also president
of the Institute on Health Care Costs and Solutions, an organization within
WBGH, founded to focus entirely on solutions to the health care cost crisis
from a business perspective. Darling currently serves as co-chair of the National
Committee on Quality Assurances Committee on Performance Measurement. She is
a member, among others, of the Medical Advisory Panel, Technology Evaluation
Center of the Blue Cross Blue Shield Association, Institute of Medicines Board
on Health Promotion and Disease Prevention and the Council on Health Care Economics
and Policy. Prior to joining the Business Group, Darling served as senior consultant,
Group Benefits and Health Care for Watson Wyatt Worldwide. Earlier, she directed
health benefits purchasing for 55,000 employees and retirees at Xerox Corporation.
She was a principal at William W. Mercer. Darling worked in the U.S. Senate
as advisor to Senator David Durenberger, the ranking Republican on the Health
Subcommittee of the Senate Finance Committee. Darling received her masters
degree in Demography/Sociology and her bachelors of science degree in History/English,
cum laude, from the University of Memphis.

KAREN DAVIS - President, The Commonwealth Fund
Karen Davis is president of The Commonwealth Fund, a national philanthropy engaged
in independent research on health and social policy issues. The Commonwealth
Fund seeks ways to help Americans live healthy and productive lives, giving
special attention to those groups with serious and neglected problems. Davis
is a nationally recognized economist. Before joining the Fund, she served as
chairman of the Department of Health Policy and Management at The John Hopkins
School of Public Health, where she also held an appointment as professor of
economics. She served as deputy assistant secretary for health policy in the
Department of Health and Human Services from 1977-1980, and was the first woman
to head a U.S. Public Health Service agency. Davis was a senior fellow at the
Brookings Institution in Washington, D.C., a visiting lecturer at Harvard University,
and an assistant professor of economics at Rice University. Davis is the recipient
of the 2000 Baxter-Allegiance Foundation Prize for Health Services Research.
In the spring of 2001, Davis received an honorary doctorate in humane letters
from John Hopkins University. Davis has published a number of significant books,
monographs, and articles on health and social policy issues. She serves on the
Overseers Committee to Visit the School of Public Health, Harvard University;
the Board of Visitors of Columbia University, School of Nursing; and the Columbia
Presbyterian Medical Center Advisory Committee for the Center for Womens Health.
She is a past president of AcademyHealth (formerly AHSRHP) and an AcademyHealth
distinguished fellow; and a member of the Kaiser Commission on Medicaid and
the Uninsured. Davis received her Ph.D. in economics from Rice University.

PAUL B. GINSBURG, Ph.D. - President, Center for Studying
Health System Change
Paul Ginsburg, a nationally known economist and health policy expert, is president
of HSC, a nonpartisan policy research organization in Washington, D.C., funded
exclusively by The Robert Wood Johnson Foundation. Previously, Ginsburg was
the founding executive director of the Physician Payment Review Commission (PPRC),
created by Congress to provide nonpartisan advice about Medicare and Medicaid
payment issues. Under his leadership, the PPRC developed the Medicare physician
payment reform proposal that was enacted by Congress in 1989. A highly respected
researcher, Ginsburg previously has worked for the RAND Corp. and the Congressional
Budget Office. He earned his doctorate in economics from Harvard University.

JOY M. GROSSMAN, Ph.D. - Associate Director, Center
for Studying Health System Change
Joy Grossman is associate director, HSC, where she contributes to the development
of HSCs research agenda and oversees data collection activities. Grossmans
research focus is on health plan and provider competition and market variation
in managed care. Before joining HSC, Grossman was a health policy analyst with
the Prospective Payment Assessment Commission. In this position and in prior
research positions, she worked on a variety of issues related to hospital financing
and competition. As an investment banker in New York, she arranged tax-exempt
financings for non-profit hospitals. Grossman earned her doctorate in economics
from the University of California at Berkeley.

ARNOLD MILSTEIN M.D., M.P.H. - Medical Director,
Pacific Business Group on Health; National Health Care Thought Leader, Mercer
Human Resource Consulting
Arnold Milstein is the medical director of the Pacific Business Group on Health
(PBGH) and National Health Care Thought Leader and a Worldwide Partner at Mercer
Human Resource Consulting. PBGH is the largest health care purchasers coalition
in the U.S. He is an associate clinical professor at the University of California
at San Francisco. His work focuses on: performance improvement methods for large
health care purchasers and providers; clinical performance measurement; and
the psychology of clinical performance failure. Milstein co-founded both the
Leapfrog Group and the Consumer Purchaser Disclosure Project. He heads clinical
standards setting for both initiatives. A Rosenthal Lecturer at the Institute
of Medicine, the New England Journal of Medicines series on employer sponsored
health insurance described him as a "pioneer" in efforts to advance
quality of care. Milstein received his B.A. in economics from Harvard, his M.D.
from Tufts and his M.P.H. in Health Services Planning from UC Berkeley.

SALLY TRUDE, Ph.D. - Senior Health Researcher, Center
for Studying Health System Change
Sally Trude is a senior health researcher at the Center for Studying Health
System Change, where she focuses on employer-sponsored health insurance coverage
including consumer-driven health plans. She also conducts research on access
to physician services. Trude previously served as a senior analyst for the Physician
Payment Review Commission. Before coming to Washington, D.C., Trude worked at
RAND in California, where she received her Ph.D. in public policy analysis from
the RAND Graduate School. Trude also holds a masters degree in biostatistics
from the University of California, Los Angeles, and a bachelors degree in social
sciences from the University of California, Irvine.